2024
Annual Report
R
R
THE LEADER
ACROSS RESIDENTIAL
MORTGAGE FINANCE
Annaly combines the power of capital together with disciplined
strategy to best serve our shareholders. Proven over 25 years,
we continue to work relentlessly to optimize risk-adjusted returns
throughout market cycles.
With $13 billion in permanent capital(1), Annaly is a leading source of
private capital for the U.S. housing sector.
2024 Financial
Highlights
Note: Please refer to Glossary for defined terms and “Leader Across Residential Mortgage Finance” in Endnotes section for footnoted information.
$80.9bn
Total Assets Across Annaly’s
Diverse Investment Strategies(2)
$12.6bn
Permanent Capital(1)
11.9%
2024 Economic Return
815%
Total Shareholder
Return Since IPO(3)
$27bn
Common and Preferred
Dividends Declared(4)
13.6%
Dividend Yield on
Book Value(5)
900k+
American Homes
Financed(6)
$6.9bn
Total Assets Available
for Financing(7)
1
2 0 2 4 A N N U A L R E P O R T
Note: Please refer to Glossary for defined terms and “Power of Annaly” in Endnotes section for footnoted information.
–
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$11,000
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Peer 8
Peer 9
Peer 10
Peer 11
Peer 12
Annaly Market Cap: $10.3bn
Peer Median Market Cap: $1.0bn
R
The industry leading
mREIT with a differentiated
investing model
Power of
Annaly
10x
Scale
At 10x the size of the median mortgage REIT by market
cap(1), we are a leader across the residential mortgage
finance market.
Larger than Median
mREIT by Market Cap(1)
$12.6bn
Diversified
Annaly is able to efficiently diversify investments across
our businesses through a rigorous shared capital model
and capital allocation process.
Permanent
Capital(2)
1.44%
Operating
Efficiency
Annaly operates a highly institutionalized platform and
benefits from our scale and efficiency, operating at lower
cost levels than peer averages.
Operating Expense as
a Percent of Average
Equity(3)
$6.9bn
Liquid
Our diversified, lower leveraged strategy supports
enhanced liquidity, with $6.9bn of total assets
available for financing(4) including $3.9bn of cash and
unencumbered Agency MBS.
Total Assets Available
for Financing(4)
Market Cap ($mm) | Annaly vs. mREIT Peers(1)
Note: Please refer to Glossary for defined terms and “Proven Results” in Endnotes section for footnoted information.
($ in millions)
–
$4,000
$8,000
$12,000
$16,000
$20,000
$24,000
$28,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Prior Cumulative Dividends Declared
Dividends Declared During Year
(200%)
–
200%
400%
600%
800%
1,000%
1,200%
Oct-97
Sep-99
Aug-01
Aug-03
Jul-05
Jun-07
Jun-09
May-11
Apr-13
Apr-15
Mar-17
Feb-19
Feb-21
Jan-23
Dec-24
Annaly
S&P 500 Financials Index
S&P 500 REITs Index
815%
519%
400%
Proven
Results
Proven over 25 years to be a competitive source of yield for
shareholders
Annaly has delivered a total return of 815% since our IPO(2)
Since inception, Annaly has delivered $27bn in dividends to shareholders(1)
3
2 0 2 4 A N N U A L R E P O R T
People
First
Our greatest asset is our employees – highly skilled individuals with
varying sets of professional experience across sectors, credit cycles and
functions – who come to work every day committed to the long-term
success and growth of our Company
Our People by the Numbers
191
Full-time
employees
36%
42%
8%
50%
60%
A
of employees identify
as women
of employees identify as
racially / ethnically diverse
Total voluntary turnover
in 2024, representing
roughly half of the financial
services sector average(1)
of employees participated
in at least one of our 7
employee networks
of employees participated
in community engagement
events
Employee Engagement, Satisfaction and Feedback
MSCI ESG Rating
Learning & Development
FTSE4Good Index
In 2024, we conducted our seventh annual
employee engagement survey to identify
our strengths and areas for improvement
and to measure the impact of a multitude of
initiatives
Annaly received an “A” rating from
MSCI, highlighting our commitment
to management of financially relevant
environmental, social and governance risks
and opportunities
In June 2024, we published our fifth annual Corporate Responsibility Report, titled Powering
American Homeownership, detailing our corporate responsibility initiatives across corporate
governance, human capital, responsible investments, and the environment
Annaly provides opportunities for employees
to learn in a multitude of ways. In 2024, we
conducted over 30 employee training and
development opportunities
For the sixth consecutive year in 2024,
Annaly was included in the FTSE4Good
Index, an equity index measuring strong
corporate environmental, social and
governance practices
Human Capital
Initiatives &
Recognitions
Note: Please refer to Glossary for defined terms and “People First” in Endnotes section for footnoted information.
4
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
18
Financing, Capital & Liquidity
19
Onslow Bay Strategic Milestones
Board Composition & Shareholder Engagement
Board of Directors
20
21
Corporate Governance
8
Message From Our CEO
Agency
Residential Credit
Mortgage Servicing Rights
14
15
16
13
Annaly Investment Strategies
Table of
Contents
5
2 0 2 4 A N N U A L R E P O R T
Dear Fellow Shareholders,
Over the last few years, Annaly has successfully
strengthened and expanded our investment
capabilities across the housing finance sector –
solidifying our position as the largest mortgage
REIT with the ability to allocate capital across
each component of the mortgage loan. We
continue to fortify our core Agency strategy,
while we efficiently built our Residential Credit
and Mortgage Servicing Rights platforms, which
complement our Agency portfolio and enhance
our ability to provide attractive risk-adjusted
returns to our shareholders.
As we outlined during our 2024 Investor Day,
we believe that the combination of these three
strategies on our balance sheet improves the
stability of our returns and better positions
us to deliver value to our shareholders
across differing economic cycles and market
environments.
PORTFOLIO PERFORMANCE
Following the end of the Federal Reserve’s
historic interest rate hiking cycle, the
environment for Agency MBS was more
favorable in 2024. Technical factors improved
throughout the year as supply and demand
moved into better balance given reduced
origination and increased demand from money
managers and banks. Spreads remained
at historically attractive levels leading to
robust returns while a steeper yield curve and
decreased financing costs enhanced carry. And
while volatility has remained elevated, Agency
MBS has performed better than during other
episodes of interest rate uncertainty in recent
memory.
Meanwhile, housing market activity has been
subdued given elevated mortgage rates.
Despite certain regions of the U.S. coming
under pressure in light of strong post-pandemic
inventory growth, the housing market overall
has remained durable, providing a supportive
environment for our credit businesses.
Against this backdrop, each of our three
investment strategies generated a strong
economic return for the year with our lowest
leverage in nearly ten years. We have realized
considerable synergies now that our Residential
Credit and MSR businesses are fully scaled,
which contributed to our performance and
achievements during 2024 that include:
Agency MBS: We continued our migration
up in coupon throughout 2024, increasing
the portfolio by nearly $5 billion from
accretive capital raised, predominantly in
5.5% coupons and higher. Our allocation to
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
Our performance in 2024 underscores
the merits of this strategic evolution
as we generated an 11.9% economic
return, including over $1.5 billion of
common and preferred dividends paid.
Message From Our CEO
6
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
TBA securities remained minimal and the
weighted average coupon of the portfolio
increased from
4.57% to 5.00%.
With this positioning,
we benefitted
from the relative
outperformance
of higher coupons
vis-à-vis intermediate coupons as well as
improved convexity from specified pools. We
proactively managed the portfolio’s duration
with a conservative hedge strategy given
the sustained interest rate volatility. Activity
focused on increasing exposure to Treasury
securities due to the relative value compared
to swaps while maintaining a diversified and
liquid hedge portfolio.
Residential Credit: 2024 marked another
record year for our Onslow Bay subsidiary
as we further enhanced our position as
a market leader across our residential
whole loan correspondent channel and
securitization program. Our portfolio grew
17% year-over-year with whole loan and
retained OBX assets increasing by $2 billion
while our third-party securities decreased by
nearly 30% in line with our strategic focus
on organic asset creation. As the pace of
production has increased, we have been
careful to maintain our disciplined approach
to credit, including reporting the lowest
delinquencies out of the top 10 largest
Non-QM issuers throughout the year.(1) OBX
securitization volume has grown in lockstep
with correspondent channel activity, and
we remained the largest non-bank issuer of
Prime Jumbo and Expanded Credit MBS.(2)
Mortgage Servicing Rights: Our MSR
portfolio ended the year at $3.3 billion
in market value(3), representing an
approximately 25%
increase year-over-
year. Onslow Bay was
the third largest buyer
of conventional MSR
in 2024, onboarding nearly $60 billion in
unpaid principal balance and ending the year
as the eighth largest non-bank servicer.(4) We
expanded our recapture and subservicing
relationships with industry leaders, including
our partnership with Rocket Mortgage that
was announced in the fall, and were proud to
be recognized for our commitment to high-
quality servicing as the recipient of a 2024
SHARP award from Freddie Mac.
FINANCING, CAPITAL & LIQUIDITY
Diversification of funding sources remains
a focus and key differentiator for Annaly as
demonstrated by record issuance from our
securitization platform and additional financing
capacity added during the year. Since the
beginning of 2024, Onslow Bay has closed 26
securitizations totaling $13.8 billion in
proceeds.(5) Additionally, we were pleased to
increase financing capacity by $1.8 billion
across our Residential Credit and MSR
businesses since the beginning of 2024.(6)
Our total warehouse capacity across both
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
5.00%
Increased weighted
average coupon of
portfolio from 4.57%
to 5.00%
25%
Annaly’s MSR portfolio
grew 25% Y-o-Y
7
2 0 2 4 A N N U A L R E P O R T
businesses now stands
at $5.4 billion including
$2.2 billion of committed
capacity.(7)
Annaly continued to
prudently manage our leverage and liquidity
profile amid volatility experienced throughout
the year. Economic leverage(8) decreased
modestly to 5.5x and we ended the year
with $6.9 billion in total assets available for
financing(9), an increase of
$0.7 billion from 2023. We opportunistically
raised $1.6 billion of common equity(10) in 2024,
which was accretive to both book value and
earnings, bolstered by attractive investment
returns across our three strategies. All told,
our financial strength enables us to be nimble
and we are well-positioned to capitalize on
opportunities out the horizon.
OUTLOOK & CONCLUSION
Looking forward, we are optimistic with
respect to our outlook for the year and feel
our combined portfolio is well-positioned to
generate strong risk-adjusted returns in the
current environment. Agency MBS maintains
historically attractive spreads on both an
absolute and relative basis compared to other
fixed income assets, with an improving technical
picture and enhanced carry further supporting
the sector. Our Residential Credit business is an
established market leader with demonstrated
momentum following another year of record
loan production and securitization volume,
which we expect to continue as the Non-QM
market is on pace to grow more than 20% in
2025. Lastly, our MSR strategy is differentiated
by our deep capital base, low economic leverage
and synergistic relationships with originators
and servicers, all of which leave us primed for
further expansion.
While we are encouraged by the investment
landscape and our positioning, risk
management is part of our DNA and our low
leverage, ample liquidity and dynamic portfolio
management leave us
prepared for wherever
the year may take us.
We have delivered an
815% total return to
shareholders since our
IPO(11) demonstrating our ability to create value
throughout market environments.
Overall, we believe that Annaly’s unique
business model has the ability for continued
outperformance in the current environment –
best seen through our 17% economic return
over the last two years, compared to 1.1% and
5.1% on average for Agency and Hybrid mREITs,
respectively.(12)
We are proud to have declared $27 billion in
dividends on our common and preferred stock
since inception and believe that our 14.6%
dividend yield on book value is highly attractive
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
815%
total return to
shareholders since
our IPO
As a testament to our portfolio
strength and commitment to delivering
value for our shareholders, we recently
announced an increase in our common
stock dividend to $0.70 per share.
$5.4 billion
of total warehouse
capacity
8
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
relative to our peer set and other fixed income
metrics.(13)
Lastly, I wanted to recognize the contributions
of three Board members – Michael Haylon,
Francine J. Bovich and John H. Schaefer – who
are concluding their service on the Board after
this year’s Annual Meeting in accordance with
our Board refreshment policy. All three have
been critical to Annaly’s strategic evolution
and steadfast in their commitment to driving
shareholder value. In particular, I wanted to
thank Mike Haylon, who joined the Board in 2008
and has served as Independent Chair of the
Board since 2020, for his thoughtful guidance
over the years. Annaly’s shareholders have truly
benefitted from their dedicated stewardship.
On behalf of Annaly’s Board and executive
leadership team, we thank you for your support
and confidence. We remain firmly committed to
delivering you the best returns possible.
Best regards,
David Finkelstein
Chief Executive Officer &
Co-Chief Investment Officer
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
David L. Finkelstein is Chief Executive Officer and
Co-Chief Investment Officer of Annaly. Mr. Finkelstein
was elected to serve as a director of Annaly in March
2020. Mr. Finkelstein has over 25 years of experience
in fixed income investments. Prior to joining Annaly in
2013, Mr. Finkelstein served for four years as an Officer
in the Markets Group of the Federal Reserve Bank of
New York where he was the primary strategist and policy
advisor for the MBS Purchase Program. Prior to that, Mr.
Finkelstein held senior Agency MBS trading positions
at Salomon Smith Barney, Citigroup Inc. and Barclays
PLC. Mr. Finkelstein is Vice Chair of the Treasury Market
Practices Group sponsored by the Federal Reserve Bank
of New York as well as a member of the Financial Sector
Advisory Council of the Federal Reserve Bank of Dallas.
Mr. Finkelstein received a B.A. in Business Administration
from the University of Washington and a M.B.A. from the
University of Chicago, Booth School of Business. Mr.
Finkelstein also holds the Chartered Financial Analyst®
designation.
9
2 0 2 4 A N N U A L R E P O R T
AT ANNALY,
WE LEAD WITH
PURPOSE
which means being
accountable for how
we drive durable value
for our stakeholders
Annaly Agency
Group
Annaly
Residential
Credit Group
Annaly Mortgage
Servicing Rights
Group
R
59%
of Dedicated
Capital(4)
22%
of Dedicated
Capital(4)
19%
of Dedicated
Capital(4)
WE ARE A LEADER ACROSS THE
RESIDENTIAL MORTGAGE FINANCE MARKET
Note: Please refer to Glossary for defined terms and “Annaly Investment Strategies” in Endnotes section for footnoted information.
3.0%
4%
3.5%
8%
5.0%
17%
4.5%
10%
4.0%
9%
5.5%
21%
6.0%
19%
>=6.5%
10%
OBX Retained
32%
Prime
1%
Alt A
2%
Subprime
4%
NPL
4%
RPL
9%
Prime Jumbo
2%
Whole
Loans
34%
CRT
11%
CRE CLO
1%
2.5% to 3.0%
50%
>5.0%
3%
3.5% to 4.0%
13%
4.5% to 5.0%
2%
4.0% to 4.5%
3%
2.0% to 2.5%
4%
<2.0%
1%
3.0% to 3.5%
25%
Pass Through Coupon Type(3)
Sector Type(5)
Underlying Note Rate
Distribution(6)
Annaly Investment
Strategies
$12.6bn
Permanent Capital(2)
<=2.5%
2%
Portfolio Overview(1)
Agency
The Annaly Agency Group invests in Agency MBS & Agency CMBS securities
collateralized by residential or commercial mortgages which are guaranteed by
Fannie Mae, Freddie Mac or Ginnie Mae
Assets
Strategic Approach
Annaly’s Agency portfolio is made up of high-quality and liquid securities, predominantly specified pools,
TBAs and derivatives
Portfolio benefits from in-house proprietary analytics that identify emerging prepayment trends and a
focus on durable cash flows
Diverse set of investment options within the Agency market, including Agency CMBS, which provides
complementary duration and return profiles to Agency MBS
Access to deep and varied financing sources, including traditional bilateral repo, sponsored repo and
proprietary broker-dealer repo
Seasoned team manages interest rate exposure inherent in Agency MBS through disciplined asset
selection and an array of hedging products
Note: Please refer to Glossary for defined terms and “Our Investment Strategies | Agency” in Endnotes section for footnoted information.
NLY Specified Pools and TBA Holdings, %
Agency Hedging Composition, %
Hedges(2)
0%
25%
50%
75%
100%
2021
2022
2023
2024
Pools
TBA
0%
25%
50%
75%
100%
2021
2022
2023
2024
Swaps
Swaptions
Treasuries
Assets(1)
$70.6bn
Dedicated Capital
$7.4bn
Agency Portfolio Detail
Residential Credit
Correspondent Channel Quarterly Lock and
Funded Volumes ($mm)
Strategic Approach
Programmatic securitization sponsor of new origination, residential whole loans with 77 deals
comprising $33.8 billion of issuance since the beginning of 2018(2)
Agile platform that can deploy capital across both the residential whole loan and Non-Agency
securities markets
Whole loan acquisition via Onslow Bay correspondent channel and securitization program provides the
ability to create proprietary investments tailored to desired credit preferences with control over asset
selection, counterparties and loss mitigation
Modest use of long-term balance sheet leverage with most positions term financed through
securitization
Number of Deals
OBX Securitization History – UPB Issued ($mm)
$3,742
$4,091
$4,369
$5,397
$2,266
$2,767
$2,889
$3,815
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Locks
Fundings
$2,752
$2,823
$3,159
$2,271
$1,094
$2,095
$1,846
$3,857
$6,196
$4,941
$11,005
2018
2019
2020
2021
2022
2023
2024
Q1'24:
Q2'24:
Q3'24:
Q4'24:
3
5
4
10
16
13
21
Note: Please refer to Glossary for defined terms and “Our Investment Strategies | Residential Credit” in Endnotes section for footnoted information.
The Annaly Residential Credit Group invests in non-Agency residential
mortgage assets within the securitized product and whole loan markets
Assets(1)
$7.0bn
Dedicated Capital
$2.7bn
Onslow Bay Financial | Fully Scaled Correspondent Channel
Note: Please refer to Glossary for defined terms and “Our Investment Strategies | Mortgage Servicing Rights” in Endnotes section for footnoted information.
MSR Holdings (Market Value, $mm)
Strategic Approach
Annaly’s MSR portfolio complements Annaly’s Agency MBS strategy by offering an attractive yield while
providing a hedge to mortgage basis volatility and slower prepayment speeds on discount dollar-priced MBS
As an established and scaled servicer, Annaly is well-positioned for opportunistic growth in both the bulk and
flow MSR markets
Annaly serves as a strategic partner to originators given certainty of capital and complementary business
strategy
Dynamic recapture capabilities with the ability to allocate across several industry-leading recapture partners
Portfolio consists of low coupon, high-quality conventional MSR (Fannie and Freddie)(2)
Current MSR Portfolio by the Numbers(3)
(Excludes Interests in MSR / MSR of LP Interest)
$1,748
$2,122
$2,651
$2,786
$2,693
$2,909
$518
$125
$385
$39
$35
$34
$34
$32
$32
$1,787
$2,675
$2,685
$2,820
$2,850
$3,326
Q4 2022
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
MSR
Unsettled MSR Commitments
Interests in MSR / MSR of LP Interest
3M CPR
3.7%
UPB ($bn)
$196.9
Loan Count (‘000)
604
Weighted Average
Note Rate
3.20%
Wtd. Avg. FICO / LTV
(at Origination)
757 / 70%
D60+
0.5%
Assets(1)
$3.3bn
Dedicated Capital
$2.5bn
Mortgage Servicing Rights
The Annaly Mortgage Servicing Rights Group invests in mortgage servicing
rights, which provide the obligation to service residential loans in exchange for a
fixed servicing fee
MSR Portfolio Detail
R
Note: Please refer to Glossary for defined terms and “Financing, Capital & Liquidity” in Endnotes section for footnoted information.
* Represents a non-GAAP financial measure; see Appendix.
Common Equity
$11.1 billion
Common
Equity
Agency &
Non-Agency Repo(1)
$66.8 billion
In-House
Broker-Dealer
Street
Repo
Direct
Repo
Secured Financing
$22.8 billion
Credit Facilities
/ Warehouse
Financing
Non-Recourse
Term
Financing(4)
2024 Financial Highlights
2024 year-end average economic cost of interest-
bearing liabilities* of 3.79% and GAAP cost of
interest-bearing liabilities of 4.96%
Closed 21 residential whole loan securitizations
totaling $11 billion throughout 2024
Weighted average days to maturity for repurchase
agreements of 32 days
Total warehouse capacity across both Annaly’s
Residential Credit and MSR businesses of
$5.4 billion, including $2.2 billion of committed
capacity(2)
Raised $1.6 billion of accretive common equity
throughout 2024(3)
Maintained significant liquidity throughout the year
given market volatility; remained well-positioned for
opportunistic growth
–
Ended the year with a strong liquidity position
of $6.9 billion of total assets available for
financing(5), including cash and unencumbered
Agency MBS of $3.9 billion
Preferred Equity
$1.5 billion
Preferred
Equity
Financing,
Capital &
Liquidity
Annaly’s deep and diverse financing sources provide us with
unique competitive advantages. Throughout the year, Annaly
continued to enhance our leverage and liquidity position
Total Capitalization (as of December 31, 2024)
16
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
Onslow Bay, Annaly’s wholly owned subsidiary through which we purchase non-Agency loans, issue
securitizations and own MSR, expanded its leadership across the Residential Credit and MSR markets
with another year of substantial growth
Onslow Bay Strategic Milestones
Since the Beginning of 2024
Onslow Bay has issued 77 securitizations since
2018, totaling $33.8 billion in issuance(1)
–
Issued $11.0 billion across 21 securitizations
in 2024
2024 was another record year for OBX’s
correspondent channel with $17.6 billion and
$11.7 billion in lock volume and fundings,
respectively, with each quarter surpassing the
prior quarter
Purchased $13 billion of whole loans in 2024, with
an outstanding pipeline of $2.3 billion(2)
Portfolio exhibits strong credit quality, including:
–
Original FICO of 758 and Original LTV of 68%
–
Mark-to-market LTV of 61%
MSR portfolio, grew by nearly 25% to $3.3 billion in
assets year-over-year(5)
Third largest buyer of conventional MSR in 2024(6)
onboarding nearly $58 billion of UPB throughout
the year
Attractive portfolio with very low note rate, stable
cash flows and high credit quality collateral
–
Lowest note rate of Top 20 Agency MBS
servicers at 3.20%
–
Original FICO of 757 and Original LTV of 70%
–
3 Month CPR of 3.7%
Recapture and subservicing relationships with
industry leaders
–
Entered strategic subservicing relationship with
Rocket Mortgage in October 2024
Leading Securitizer
Non-Bank Issuer of Prime Jumbo
& Expanded Credit MBS and #2
Issuer Overall(3)
#1
Exceptional Credit Quality
Lowest Delinquencies (D60+)
Amongst Top 10 Non-QM Issuers(4)
#1
Portfolio Growth
Largest Buyer of Conventional
MSR in 2024(6)
#3
Freddie Mac 2024 Bronze
SHARP Award Recipient
Residential
Credit
Key Milestones Across Our Housing Finance Expansion Strategy
Mortgage
Servicing
Rights
Note: Please refer to Glossary for defined terms and “Onslow Bay Strategic Milestones” in Endnotes section for footnoted information.
17
2 0 2 4 A N N U A L R E P O R T
2024 Freddie Mac
SHARPSM Award Winner
Tenure
Age
Diversity
Represents the average
age of Continuing Directors
of Continuing Directors identify as
women or racially / ethnically diverse
Represents the average
tenure of Continuing Directors
2024–2025 Global Shareholder Engagement Efforts(1)
Outreach
Included
of top 100
institutional investors
100%
Investor Meeting
Participation
investor meetings in 2024
210+
4.3
Years
67%
>=6 Years
3 Directors
3–5 Years
3 Directors
<=3 Years
3 Directors
60s
2 Directors
50s
7 Directors
Men
6 Directors
White
4 Directors
Racially/
Ethnically
Diverse
5 Directors
Women
3 Directors
9
5
8
Standing
Board Committees
Continuing Directors
are Independent
Continuing
Directors
We take pride in our extensive
outreach efforts and are
committed to transparency,
enhanced disclosure and
continued engagement
“
56.3
Years
We are committed to having a Board representing diverse backgrounds and a wide range of professional
experiences that we believe benefits the long-term interest of our shareholders, whom we regularly
engage with on corporate responsibility, governance and strategic matters
Board Composition & Shareholder
Engagement Efforts
Note: Please refer to Glossary for defined terms and “Board Composition & Shareholder Engagement Efforts” in Endnotes section for footnoted information.
Board of Directors
18
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
Note: Please refer to Glossary for defined terms and “Board of Directors” in Endnotes section for footnoted information.
Annaly’s highly qualified Board of Directors possess a broad array of
complementary skills and experience
Board of
Directors
David L. Finkelstein
Chief Executive Officer and
Co-Chief Investment Officer,
Annaly Capital Mgmt., Inc.
Kathy Hopinkah Hannan
Former National Managing
Partner, Global Lead Partner,
KPMG LLP
Audit Committee (Chair)
MDC Committee
NCG Committee
John H. Schaefer(1)
Former President and Chief
Operating Officer,
Morgan Stanley Global Wealth
Management
Audit Committee
MDC Committee
Michael Haylon(1)
Independent Chair of the Board,
Former Managing Director and
Head of Conning North America,
Conning, Inc.
NCG Committee
Risk Committee
Martin Laguerre
Co-Head of Global
Diversified Private Equity,
GCM Grosvenor
Audit Committee
CR Committee
Glenn A. Votek
Former Chief Financial Officer,
Annaly Capital Mgmt., Inc.
CR Committee
Risk Committee
Francine J. Bovich(1)
Former Managing Director,
Morgan Stanley Investment
Management
NCG Committee (Chair)
MDC Committee
Manon Laroche
Former Managing Director,
Head of Global Spread Products
Securitized Sales, North America,
Citigroup
CR Committee
Risk Committee
Scott Wede
Former Global Head of
Securitized Products and
Municipal Finance,
Barclays Capital
Audit Committee
Risk Committee
Thomas Hamilton
Former Strategic Advisor to the
Global Head of Fixed Income,
Currencies and Commodities,
Barclays Capital
Risk Committee (Chair)
Audit Committee
MDC Committee
Eric A. Reeves
Founder and Chief Executive
Officer,
Prospect Park LLC
CR Committee (Chair)
NCG Committee
Risk Committee
Vicki Williams
Chief Human Resources Officer,
NBCUniversal
MDC Committee (Chair)
NCG Committee
19
2 0 2 4 A N N U A L R E P O R T
R
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: December 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER: 1-13447
ANNALY CAPITAL MANAGEMENT INC
(Exact Name of Registrant as Specified in its Charter)
Maryland
22-3479661
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1211 Avenue of the Americas
New York, New York
10036
(Address of principal executive offices)
(Zip Code)
(212) 696-0100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
NLY
New York Stock Exchange
6.95% Series F Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
NLY.F
New York Stock Exchange
6.50% Series G Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
NLY.G
New York Stock Exchange
6.75% Series I Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
NLY.I
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
☑
Accelerated
filer
☐
Non-accelerated
filer
☐
Smaller reporting
company
☐
Emerging growth
company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
At June 30, 2024, the aggregate market value of the voting common stock held by non-affiliates of the registrant was
approximately $9.5 billion, based on the closing sales price of the registrant’s common stock on such date as reported on the
New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding on January 31, 2025 was 578,357,904.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the
fiscal year ended December 31, 2024. Portions of such proxy statement are incorporated by reference into Part III of this
Form 10-K.
ANNALY CAPITAL MANAGEMENT, INC.
2024 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1.
Business
1
Item 1A.
Risk Factors
11
Item 1B.
Unresolved Staff Comments
44
Item 1C.
Cybersecurity
44
Item 2.
Properties
44
Item 3.
Legal Proceedings
44
Item 4.
Mine Safety Disclosures
44
PART II
Item 5.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
45
Item 6.
Reserved
48
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
49
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
92
Item 8.
Financial Statements and Supplementary Data
92
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
92
Item 9A.
Controls and Procedures
92
Item 9B.
Other Information
95
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
95
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
96
Item 11.
Executive Compensation
96
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
96
Item 13.
Certain Relationships and Related Transactions, and Director Independence
97
Item 14.
Principal Accounting Fees and Services
97
PART IV
Item 15.
Exhibits, Financial Statement Schedules
98
Exhibit Index
98
Item 16.
Form 10-K Summary
101
Financial Statements
102
Signatures
II-1
Special Note Regarding Forward-Looking Statements
This presentation, other written or oral communications, and our public documents to which we refer contain or incorporate by
reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control)
and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,”
“will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those
terms. Such statements include those relating to the Company’s future performance, macro outlook, the interest rate and credit
environments, tax reform and future opportunities. Actual results could differ materially from those set forth in forward-looking
statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes
in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for purchase; the availability
of financing and, if available, the terms of any financing; changes in the market value of the Company’s assets; changes in
business conditions and the general economy; the Company’s ability to grow its residential credit business; the Company's
ability to grow its mortgage servicing rights business; credit risks related to the Company’s investments in credit risk transfer
securities and residential mortgage-backed securities and related residential mortgage credit assets; risks related to investments
in mortgage servicing rights; the Company’s ability to consummate any contemplated investment opportunities; changes in
government regulations or policy affecting the Company’s business; the Company’s ability to maintain its qualification as a
REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the
Investment Company Act of 1940; and operational risks or risk management failures by us or critical third parties, including
cybersecurity incidents. For a discussion of the risks and uncertainties which could cause actual results to differ from those
contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any
subsequent Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.
Website and Social Media Disclosure
We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-management) as
channels of distribution of company information. The information we post through these channels may be deemed material.
Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public
conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Annaly
when you enroll your email address by visiting the “News & Insights” section of our website, then clicking on “Subscribe” and
completing the email notification form. Our website, any alerts and social media channels are not incorporated into this annual
report on Form 10-K.
PART I
ITEM 1. BUSINESS
“Annaly,” “we,” “us,” or “our” refers to Annaly Capital Management, Inc. and our wholly-owned subsidiaries, except where
it is made clear that the term means only the parent company.
Refer to the section titled “Glossary of Terms” located at the end of Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” for definitions of certain of the commonly used terms in this annual report on
Form 10-K.
The following description of our business should be read in conjunction with the Consolidated Financial Statements and the
related Notes thereto, and the information set forth under the heading “Special Note Regarding Forward-Looking Statements”
in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
INDEX TO ITEM 1. BUSINESS
Page
Business Overview
2
Business and Investment Strategy
2
Our Portfolio and Capital Allocation Policy
3
Risk Appetite
3
Capital Structure and Financing
4
Operating Platform
5
Risk Management
6
Information about our Executive Officers
6
Human Capital
7
Regulatory Requirements
8
Competition
9
Corporate Governance
9
Distributions
10
Available Information
10
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
1
Business Overview
Introduction
We are a leading diversified capital manager with investment strategies across mortgage finance. Our principal business
objective is to generate net income for distribution to our stockholders and optimize our returns through prudent management of
our diversified investment strategies. We are an internally-managed Maryland corporation founded in 1997 that has elected to
be taxed as a real estate investment trust (“REIT”). Our common stock is listed on the New York Stock Exchange under the
symbol “NLY.”
We use our capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread
between the yield on our assets and the cost of our borrowings and hedging activities.
We believe that our business objectives are supported by our size and conservative financial posture relative to the industry, the
extensive experience of our employees, the diversity of our investment strategy, a comprehensive risk management approach,
the availability and diversification of financing sources and our operational efficiencies.
Investment Groups
Our three investment groups are primarily comprised of the following:
Investment Groups
Description
Annaly Agency Group
Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which
are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the
Agency market, including Agency commercial MBS.
Annaly Residential Credit Group
Invests primarily in non-Agency residential whole loans and securitized products within the residential
and commercial markets.
Annaly Mortgage Servicing Rights Group
Invests in mortgage servicing rights (“MSR”), which provide the right to service residential mortgage
loans in exchange for a portion of the interest payments made on the loans.
For more information refer to the Note titled “Segments” in the Notes to the Consolidated Financial Statements included in Item
15. “Exhibits, Financial Statement Schedules.”
Operating Platform
Our operating platform reflects our investments in systems, infrastructure and personnel. Our technology investments have led
to the development of proprietary portfolio analytics, financial and capital allocation modeling, portfolio cash and accounting
sub-ledger systems, and other risk and reporting tools, which, coupled with cutting-edge digital transformation applications,
support the diversification and operating efficiency of our business and our ability to implement new investment strategies. Our
operating platform supports our investments in Agency assets as well as residential credit assets, commercial real estate assets,
residential mortgage loans, and mortgage servicing rights. We believe that the diversity of our investment alternatives provides
us the flexibility to adapt to changes in market conditions and to take advantage of potential opportunities.
Business and Investment Strategy
Shared Capital Model
Our company is comprised of three investment groups, each of which has multiple investment options to capitalize on attractive
relative returns and market opportunities. In aggregate, we maintain numerous investment options across our investment
groups. Our shared capital model drives our capital allocation strategy allowing us to rotate our investments based on relative
value while also managing risk.
Strategic Relationships
A key element of our strategy is to establish and grow strategic relationships with industry leading partners in order to develop
and broaden access to quality originations flow as well as to leverage third party operations to efficiently manage operating
costs, all in an effort to generate attractive risk-adjusted returns for our shareholders. Additionally, we have attracted capital
partners to our business, augmenting our public capital markets efforts, which has resulted in increased scale without sacrificing
balance sheet liquidity. Certain of our strategic relationships also afford us the opportunity to support communities through
socially responsible investing.
We have created multiple strategic and capital partnerships across our investment groups including the following:
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
2
–
Annaly Residential Credit Group has established relationships with key mortgage loan originators and aggregators
including well-known money center banks, allowing us to efficiently source proprietary originations suited to our risk
parameters.
–
We have partnered with GIC Private Limited (“GIC”), a leading sovereign wealth fund, through the creation of a joint
venture with the purpose of investing in residential credit assets, including newly-originated residential loans and
securities issued by our subsidiaries.
–
We have partnered with Fifth Wall Ventures, the largest venture capital firm focused on technology for the real estate
industry, through a commitment to invest in their funds that target investments in North American early- and late-stage
real estate software and marketplace companies. The partnership aims to identify innovative platforms and services
that provide efficiencies across our core investment strategies.
Our Portfolio and Capital Allocation Policy
Under our capital allocation policy and subject to oversight by our Board of Directors (“Board”), we may allocate our
investments within our target asset classes as we determine to be appropriate from time to time.
Our Board may adopt changes to our capital allocation policy and targeted assets at its discretion.
The nature of our assets and our operations are intended to meet our REIT qualification requirements and our exemption from
registration as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”).
Our portfolio composition and capital allocation at December 31, 2024 and 2023 were as follows:
December 31, 2024
December 31, 2023
Asset Classes
Percentage of
Portfolio
Capital
Allocation (2)
Percentage of
Portfolio
Capital
Allocation (2)
Agency (1)(2)
87%
59%
88%
61%
Residential Credit (2)
9%
22%
9%
21%
MSR (2)
4%
19%
3%
18%
(1) Includes to-be-announced forward contracts (“TBAs”).
(2) Assets exclude assets transferred or pledged to securitization vehicles, include TBA purchase contracts (market value), unsettled
MSR commitments, CMBX derivatives (market value), and retained securities that are eliminated in consolidation and are shown
net of participations issued.
Risk Appetite
We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to
achieve our business objectives, and reflects our risk management philosophy. We engage in risk activities based on our core
expertise that aim to enhance value for our stockholders. Our activities focus on income generation and capital preservation
through proactive portfolio management, supported by a conservative liquidity and leverage posture.
The risk appetite statement asserts the following key risk parameters to guide our investment management activities:
Risk Parameter
Description
Portfolio Composition
We will maintain a portfolio comprised of target assets approved by our Board and in accordance with our capital
allocation policy.
Leverage
We generally expect to maintain an economic leverage ratio no greater than 10:1 considerate of our overall capital
allocation framework.
Liquidity Risk
We will seek to maintain an unencumbered asset portfolio sufficient to meet our liquidity needs under adverse
market conditions.
Interest Rate Risk
We will seek to manage interest rate risk to protect the portfolio from adverse rate movements utilizing derivative
instruments targeting both income and capital preservation.
Credit Risk
We will seek to manage credit risk by making investments which conform to our specific investment policy
parameters and optimize risk-adjusted returns.
Capital Preservation
We will seek to protect our capital base through disciplined risk management practices.
Operational Risk
We will seek to limit impacts to our business through disciplined operational risk management practices addressing
areas including but not limited to, management of key third party relationships (i.e. originators, sub-servicers),
human capital management, cybersecurity and technology related matters, business continuity and financial
reporting risk.
Compliance,
Regulatory and Legal
We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption from
registration under the Investment Company Act and the licenses and approvals of our regulated and licensed
subsidiaries.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
3
Our Board has reviewed and approved the investment and operating policies and strategies that support our risk appetite
statement set forth in this Form 10-K. Our Board has the power to modify or waive these policies and strategies to the extent
that our Board, in its discretion, determines that the modification or waiver is in our best interests. Among other factors, market
developments that affect our policies and strategies or that change our assessment of the market may cause our Board to revise
our policies and strategies.
We may seek to expand our capital base in order to further increase our ability to acquire new and different types of assets when
the potential returns from new investments appear attractive relative to the targeted risk-adjusted returns. We may in the future
acquire assets or companies by offering our debt or equity securities in exchange for such opportunities.
Target Assets
Within the confines of the risk appetite statement, we seek to generate the highest risk-adjusted returns on capital invested, after
consideration of the following:
•
The amount, nature and variability of anticipated
cash flows from the asset across a variety of interest
rate, yield, spread, financing cost, credit loss and
prepayment scenarios;
•
The liquidity of the asset;
•
The ability to pledge the asset to secure
collateralized borrowings;
•
When applicable, the credit of the underlying
borrower;
•
The costs of financing, hedging and managing the
asset;
•
The impact of the asset to our REIT compliance and
our exemption from registration under the
Investment Company Act; and
•
The capital and operational requirements associated
with the purchase and financing of the asset.
We target the purchase and sale of the following assets as part of our investment strategy. Our targeted assets and asset
acquisition strategy may change over time as market conditions change and as our business evolves.
Investment Group
Targeted Asset Class
Description
Annaly Agency Group
Agency MBS
Agency pass-through certificates issued or guaranteed by Agencies. Other
Agency MBS include collateralized mortgage obligations (“CMOs”), interest-
only securities and inverse floaters
To-be-announced forward
contracts (“TBAs”)
Forward contracts for Agency pass-through certificates
Agency CMBS
Pass-through certificates collateralized by commercial mortgages guaranteed
by the Agencies
Annaly Residential
Credit Group
Residential mortgage loans
Residential mortgage loans that are not guaranteed by the Agencies
Residential MBS
Securities collateralized by pools of residential loans that are not guaranteed by
one of the Agencies
Agency or private label credit
risk transfer securities (“CRT”)
Risk sharing transactions issued by Freddie Mac and Fannie Mae and similarly
structured transactions arranged by third party market participants, designed to
synthetically transfer mortgage credit risk to private investors
Annaly Mortgage
Servicing Rights
Group
Mortgage Servicing Rights
(“MSR”)
Rights to service a pool of residential mortgage loans in exchange for a portion
of the interest payments made on the loans
We believe that future interest rates and mortgage prepayment rates are very difficult to predict. Therefore, we seek to acquire
assets which we believe will provide attractive returns over a broad range of interest rate and prepayment scenarios.
Capital Structure and Financing
Our capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns
for our stockholders while maintaining appropriate liquidity to support our business and meet our financial obligations under
periods of market stress. To maintain our desired capital profile, we utilize a mix of debt and equity funding. Debt funding may
include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
4
facilities, corporate bond issuance, convertible bonds, or other liabilities. Equity capital primarily consists of common and
preferred stock.
We finance our Agency mortgage-backed securities and residential credit investments primarily with repurchase agreements.
We seek to diversify our exposure and limit concentrations by entering into repurchase agreements with multiple counterparties.
We enter into repurchase agreements with broker-dealers, commercial banks and other lenders that typically offer this type of
financing. We enter into collateralized borrowings with financial institutions meeting internal credit standards and we monitor
the financial condition of these institutions on a regular basis. At December 31, 2024, we had $65.7 billion of repurchase
agreements outstanding.
Additionally, our wholly-owned subsidiary, Arcola Securities, Inc. (“Arcola”), provides direct access to third party funding as a
member broker-dealer of the Financial Industry Regulatory Authority (“FINRA”). As an eligible institution, Arcola also raises
funds through the General Collateral Finance Repo service offered by the Fixed Income Clearing Corporation (“FICC”), with
FICC acting as the central counterparty. Arcola provides us greater depth and diversity of repurchase agreement funding while
also limiting our counterparty exposure.
To reduce our liquidity risk. we maintain a laddered approach to our repurchase agreements. At December 31, 2024, the
weighted average days to maturity was 32 days.
We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by
our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization
program (“OBX”). We are a programmatic securitization sponsor of new origination, residential whole loans with 72 deals as of
December 31, 2024 comprising $31.0 billion of issuance since the beginning of 2018. During the year ended December 31,
2024, we issued 21 OBX securitizations backed by $11.0 billion of residential whole loans.
We utilize leverage to enhance the risk-adjusted returns generated for our stockholders. We generally expect to maintain an
economic leverage ratio of no greater than 10:1 considerate of our overall capital allocation framework. This ratio varies from
time to time based upon various factors, including our management’s opinion of the level of risk of our assets and liabilities,
our mix of assets, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization
levels required by lenders when we pledge assets to secure borrowings and, lastly, our assessment of domestic and international
market conditions. Since the financial crisis beginning in 2007, we have maintained an economic leverage ratio below 8:1 and
since the Coronavirus Disease 2019 (“COVID-19”) pandemic began, an economic leverage ratio closer to or below 7:1. For
purposes of calculating this ratio, our economic leverage ratio is equal to the sum of Recourse Debt, cost basis of TBA and
CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity.
Our target economic leverage ratio is determined under our capital management policy. Should our actual economic leverage
ratio increase above the target level, we will consider appropriate measures. Our actions may include asset sales, changes in
asset mix, reductions in asset purchases or originations, issuance of capital or other capital enhancing or risk reduction
strategies.
The following table presents our leverage and capital ratios as of the periods presented.
December 31,
2024
December 31,
2023
GAAP leverage ratio
7.1:1
6.8:1
Economic leverage ratio *
5.5:1
5.7:1
GAAP capital ratio
12.3%
12.2%
Economic capital ratio *
14.6%
14.0%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial
Measures” section for additional information.
Operating Platform
We maintain a flexible and scalable operating platform to support the management and maintenance of our diverse asset
portfolio. We have invested in our infrastructure to enhance resiliency, efficiency, cybersecurity and scalability while also
ensuring coverage of our target assets. Our information technology applications span the portfolio life-cycle including pre-trade
analysis, trade execution and capture, trade settlement and financing, monitoring, management and financial accounting and
reporting.
Technology applications also support our control functions including risk, compliance, and middle- and back-offices. We have
added breadth to our operating platform to accommodate diverse asset classes and drive automation-based efficiencies. Our
business operations include a centralized collateral management function that permits in-house settlement and self-clearing,
thereby creating greater control and management of our collateral. Through technology, we have also incorporated exception-
based processing, critical data assurance and paperless workflows. Our infrastructure investment has driven operating
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
5
efficiencies while expanding the platform. Routine disaster recovery and penetration testing enhances our systems resiliency,
security and recovery of critical systems throughout the computing estate.
Risk Management
Risk is a natural element of our business. Effective risk management is of critical importance to our business strategy. The
objective of our risk management framework is to identify, measure, monitor and control the key risks to which we are subject.
Our approach to risk management is comprehensive and has been designed to foster a holistic view of risk. For a full discussion
of our risk management process and policies please refer to the section titled “Risk Management” of Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Information about our Executive Officers
The following table sets forth certain information as of February 13, 2025 concerning our executive officers:
Name
Age
Title
David L. Finkelstein
52
Chief Executive Officer and Co-Chief Investment Officer
Serena Wolfe
45
Chief Financial Officer
Steven F. Campbell
52
President and Chief Operating Officer
Anthony C. Green
50
Chief Corporate Officer, Chief Legal Officer and Secretary
David L. Finkelstein has served as the Chief Executive Officer of Annaly since March 2020 and Co-Chief Investment Officer
since January 2025. From November 2022 until January 2025, Mr. Finkelstein served as Annaly’s Chief Investment Officer, a
role he also held from November 2016 until December 2021. Mr. Finkelstein also served as Annaly’s President from March
2020 until December 2022. Prior to that, Mr. Finkelstein served as Annaly’s Chief Investment Officer, Agency and RMBS
beginning in February 2015 and as Annaly’s Head of Agency Trading beginning in August 2013. Prior to joining Annaly in
2013, Mr. Finkelstein served for four years as an Officer in the Markets Group of the Federal Reserve Bank of New York where
he was the primary strategist and policy advisor for the MBS purchase program. Mr. Finkelstein has over 25 years of
experience in fixed income investments. Prior to the Federal Reserve Bank of New York, Mr. Finkelstein held Agency MBS
trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC. Mr. Finkelstein is a member of the Treasury
Market Practices Group sponsored by the Federal Reserve Bank of New York, as well as a member of the Financial Sector
Advisory Council of the Federal Reserve Bank of Dallas. Mr. Finkelstein received his B.A. in Business Administration from the
University of Washington and his M.B.A. from the University of Chicago, Booth School of Business. Mr. Finkelstein also
holds the Chartered Financial Analyst® designation.
Serena Wolfe has served as Chief Financial Officer of Annaly since December 2019. Prior to joining Annaly in 2019, Ms.
Wolfe served as a Partner at Ernst & Young (“EY”) since 2011 and as its Central Region Real Estate Hospitality &
Construction (“RHC”) leader from 2017 to November 2019, managing the go-to-market efforts and client relationships across
the sector. Ms. Wolfe was previously also EY’s Global RHC Assurance Leader. Ms. Wolfe practiced with EY for over 20
years, including six years with EY Australia and 16 years with the U.S. practice. Ms. Wolfe currently serves on the board of
Lennar Corporation. Ms. Wolfe graduated from the University of Queensland with a Bachelor of Commerce in Accounting. She
is a Certified Public Accountant in the states of New York and California.
Steven F. Campbell has served as President of Annaly since December 2022 and Chief Operating Officer of Annaly since June
2020. Prior to these positions, Mr. Campbell served in a number of other senior roles at Annaly, including as Head of Business
Operations from September 2019 to June 2020, Head of Credit Operations and Enterprise Risk from February 2018 to
September 2019, Chief Operating Officer of Annaly Commercial Real Estate Group from December 2016 to February 2018 and
Head of Credit Strategy from April 2015 to February 2018. Mr. Campbell has over 25 years of experience in financial services.
Prior to joining Annaly in 2015, Mr. Campbell held various roles over six years at Fortress Investment Group LLC, including
serving as a Managing Director in the Credit Funds business. Prior to that, Mr. Campbell held positions at General Electric
Capital Corporation and D.B. Zwirn & Co., L.P. with a focus on credit and debt restructuring. Mr. Campbell currently serves on
the Advisory Board for the Fitzgerald Institute of Real Estate at the University of Notre Dame. Mr. Campbell received a B.B.A.
from the University of Notre Dame and a M.B.A. from the University of Chicago, Booth School of Business.
Anthony C. Green has served as Chief Corporate Officer of Annaly since January 2019 and as Chief Legal Officer and
Secretary of Annaly since March 2017. Mr. Green previously served as Annaly’s Deputy General Counsel from 2009 until
February 2017. Prior to joining Annaly, Mr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at
the law firm K&L Gates LLP. Mr. Green has over 25 years of experience in corporate and securities law. Mr. Green holds a
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
6
B.A. in Economics and Political Science from the University of Pennsylvania and a J.D. and LL.M. in International and
Comparative Law from Cornell Law School.
Human Capital
Our Human Capital team oversees our company’s workforce management to ensure its objectives are strategically integrated
with the firm’s goals and business plans. We proactively review human capital management best practices to continually
enhance our employee experience. In addition, the Management Development and Compensation (“MDC”) Committee of the
Board provides independent oversight of our policies and strategies related to human capital management. Further, the Chair of
the MDC Committee liaises on certain human capital topics with the Chair of the Corporate Responsibility Committee of the
Board as appropriate.
As of December 31, 2024, we had 191 employees.
Our People and Culture
Our employees are the driving force behind Annaly’s success, and we are committed to promoting their well-being,
engagement, and development to help them reach their highest potential. Our culture is focused on fostering a diverse,
inclusive, and rewarding work environment for all employees, with ongoing opportunities for career development, wellness,
support, and empowerment.
Our culture is built on five core values: ownership, humility, accountability, collaboration and diversity, equity and inclusion.
These values are embedded in our professional and personal conduct and are crucial to how we operate our business. All
employees are responsible for upholding these values, which form the bedrock of our culture and are vital to the continued
success of our company. Guided by these values, we are committed to attracting, developing and retaining the best talent, with
diverse experiences, perspectives and backgrounds.
We utilize employee surveys, including an annual engagement survey, to create open and honest feedback channels that foster
our ability to actively engage and involve our employees in the evolution of our culture and our human capital strategies to
enhance our overall productivity and mitigate risk. Our leaders review and incorporate survey feedback to increase employee
engagement and drive positive changes throughout our company. We remain committed to maintaining an environment of
consistent feedback as we strive for high employment satisfaction levels.
Diversity, Equity & Inclusion
The diversity of our employees enables our company to cultivate innovation, fresh perspectives, and adaptability. Diversity,
equity, and inclusion are essential tenets of our corporate culture. Our Human Capital Team, in coordination with an Inclusion
Support Committee of Executive Sponsors, is responsible for overseeing and continuing to advance our diversity, equity and
inclusion initiatives.
We are committed to promoting diversity, including gender and racial/ethnic diversity, across all levels of our company. With
57% of our Operating Committee and 61% of our overall population as of December 31, 2024 identifying as either female and/
or racially/ethnically diverse, we are driven by the belief that having a diverse group of employees supports our continued long-
term success. Hosting over 50 community building events in 2024, our seven employee network groups, which include the
Women’s Interactive Network (“WIN”), the Asian American and Pacific Islander Employee Network, the Black Employee
Network, the Latin American Employee Network, the disAbility Network, the Veteran’s Employee Network, and the Annaly
Pride Network, continue to evolve and advance. These employee networks help strengthen our inclusive culture by fostering a
sense of belonging and engagement through targeted development and networking opportunities, knowledge exchanges,
mentorship, coaching and volunteer efforts.
Additionally, we recognize and understand that education, candid conversations, and continued training are key to embedding
and advancing diversity, equity, and inclusion within our organization and culture. To further promote and foster such a
foundation, our efforts also include offering firm-wide training on topics such as unconscious bias, allyship, and inclusive
leadership. To that end, we have hosted various forums for employees to openly discuss their views and have provided
opportunities for employee connection and networking, as well as actively sought feedback through periodic employee surveys.
Compensation, Benefits and Wellness
Our employee compensation program includes base salary, annual incentive bonuses, and stock-based awards. Employee
compensation packages are designed to both align employee and stockholder interests and to provide incentives to attract, retain
and motivate talented employees.
In addition, we invest in a wide range of benefits and wellness initiatives that support healthy lifestyles and choices for our
employees. We offer benefits including health and insurance coverage, health savings and flexible spending accounts,
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
7
telemedicine benefits, 401(k) plans, paid time off, and family care resources. We also sponsor a wide range of initiatives that
promote employee wellness and mental well-being, including access to talk therapy, health coaching, stress management
support as well as a dedicated Wellness Week that includes a number of health and wellness related activities and seminars.
Over the last few years, we have enhanced our parental and family care benefits to provide extended leave and fertility
assistance.
At Annaly, we understand that it is our responsibility to provide an environment where our employees feel safe, motivated,
empowered, and prepared, regardless of whatever challenges may arise. In addition to addressing physical health and safety
concerns, we recognize that people’s daily emotional lives and mental health play a key role in their overall wellness. As such,
we continue to evaluate ways to promote and expand our mental health offerings. Additionally, we recognize that part of
meeting employee needs includes institutionalizing broader and longer-term flexibility where appropriate. Flexibility comes in
many forms at Annaly, including vacation and sick time, hybrid work options, and location strategy. We remain committed to
evaluating the evolving definition of flexibility and promoting programs and practices that foster inclusivity and well-being
both personally and professionally.
Learning and Development
We seek to advance and promote our employees’ capabilities and full potential by investing in a number of targeted learning
and development opportunities. By aligning with our overall business strategy, we design our learning and development
objectives to meet our employees’ needs and interests. Additionally, we have both a tuition reimbursement and learning
reimbursement plan that provide financial support toward the cost of furthering employee education in an area directly related
to their job.
To promote a sense of purpose, accountability and broader exposure, we offer networking opportunities across our company,
which include senior leader-led small group sessions as well as one-on-one employee knowledge share sessions. More broadly,
we continue to offer firmwide learning sessions that focus on core business strategies and initiatives to foster holistic and
inclusive learning.
Corporate and Employee Philanthropy and Volunteerism
Our corporate giving has been focused on high-impact programs that seek to advance social issues we are committed to,
including combating homelessness and advancing the professional development of women and underrepresented groups in
finance. Annaly and our employees endeavor to meaningfully contribute to the communities where we live, work and invest by
partnering with well-established non-profit organizations and through Annaly’s corporate giving, employee volunteerism and
our employee charity match program.
Regulatory Requirements
The financial services industry is subject to extensive regulation and supervision, and changes to regulations and supervisory
practices are continuously being considered by regulators and policy makers worldwide. We continue to assess our business,
risk management and compliance practices to conform to developments in the regulatory environment.
We have elected, organized and operated in a manner that qualifies us to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended and regulations promulgated thereunder (the “Code”). So long as we qualify for taxation as a REIT, we
generally will not be subject to U.S. federal income tax on our taxable income that is distributed to our stockholders.
Furthermore, substantially all of our assets, other than our taxable REIT subsidiaries (“TRSs”), consist of qualified REIT real
estate assets (of the type described in Section 856(c)(5) of the Code).
We regularly monitor our investments and the income from these investments and, to the extent we enter into hedging
transactions, we monitor income from our hedging transactions as well, so as to ensure at all times that we maintain our
qualification as a REIT, our exemption from registration under the Investment Company Act and our exemption from
registration as a commodity pool operator (“CPO”) with the U.S. Commodity Futures Trading Commission (“CFTC”).
Arcola is a member of FINRA, an SEC registered broker-dealer and is subject to regulations of the securities business that
include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and
conduct of directors, officers and employees. As a self-clearing, registered broker-dealer, Arcola is required to maintain
minimum net capital by the SEC and FINRA. Arcola consistently operates with capital in excess of its regulatory capital
requirements as defined by SEC Rule 15c3-1.
We have a subsidiary that is registered with the SEC as an investment adviser under the Investment Advisers Act. As a result,
we are subject to the anti-fraud provisions of the Investment Advisers Act and to fiduciary duties derived from these provisions
that apply to our relationships with that subsidiary’s clients. These provisions and duties impose restrictions and obligations on
us with respect to our dealings with our subsidiary’s clients, including, for example, restrictions on agency, cross and principal
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
8
transactions. Our registered investment adviser subsidiary is subject to periodic SEC examinations and other requirements
under the Investment Advisers Act and related regulations primarily intended to benefit advisory clients. These additional
requirements relate to, among other things, maintaining an effective and comprehensive compliance program, recordkeeping
and reporting requirements and disclosure requirements.
We also have a subsidiary that operates as a licensed mortgage aggregator and master servicer, which subjects it to individual
state licensing laws and to supervision and examination by federal authorities, including the Consumer Financial Protection
Bureau (“CFPB”), the U.S. Department of Housing and Urban Development (“HUD”), the SEC as well as various state
licensing, supervisory and administrative agencies. We and our subsidiaries must also comply with a large number of federal,
state and local consumer protection laws including, among others, the Gramm-Leach-Bliley Act, the Fair Debt Collection
Practices Act, Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Fair Credit Reporting Act, as well as
state foreclosure laws and federal and local bankruptcy rules. These laws and regulations, which are frequently amended and
adjusted, have, in recent years, led to an increase in both the scope of the requirements and the intensity of the supervision to
which we are subject.
The CFTC has jurisdiction over the regulation of swaps. The CFTC has asserted that this causes the operators of mortgage
REITs that use swaps as part of their business model to fall within the statutory definition of CPO, and absent relief from the
Market Participants Division of the CFTC, such operators generally much register as CPOs or qualify for an exemption from
registration. On December 7, 2012, as a result of numerous requests for no-action relief from the CPO registration requirement
for operators of mortgage REITs, the Division of Swap Dealer and Intermediary Oversight (the predecessor to the Market
Participants Division) of the CFTC issued no-action relief entitled “No-Action Relief from the Commodity Pool Operator
Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real
Estate Investment Trusts” that permits a CPO to receive relief from the requirement to register by filing a claim to perfect the
use of the relief. A claim submitted by a CPO will be effective upon filing, so long as the claim is materially complete. The
conditions that must be met relate to initial margin and premiums requirements, net income derived annually from commodity
interest positions that are not qualifying hedging transactions, marketing of interests in the mortgage REIT to the public and
identification of the entity as a mortgage real estate investment trust in its federal tax filings with the IRS. We have submitted a
claim for the relief set forth in the no-action relief entitled “No-Action Relief from the Commodity Pool Operator Registration
Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate
Investment Trusts” and believe we meet the criteria for such relief set forth therein.
Competition
We operate in a highly competitive market for investment opportunities. Competition may limit our ability to acquire desirable
investments in our target assets and could also affect the pricing of these investments. In acquiring our target assets, we will
compete with financial institutions, institutional investors, other lenders, government entities and certain other REITs. For a full
discussion of the risks associated with competition see the “Risks Related to Our Investing, Portfolio Management and
Financing Activities” section in Item 1A. “Risk Factors.”
Corporate Governance
We strive to conduct our business in accordance with the highest ethical standards and in compliance with applicable
governmental laws, rules and regulations. Our notable governance practices and policies include:
•
Our Board is composed of a majority of independent
directors, and our Audit, Management Development
and Compensation, and Nominating/Corporate
Governance Committees are composed exclusively
of independent directors.
•
We have separated the roles of Chair of the Board
and Chief Executive Officer, and appointed an
independent Chair of the Board.
•
All directors are elected on an annual basis.
•
We have adopted an enhanced director refreshment
policy, which provides that an independent director
may not stand for re-election at the next annual
meeting of stockholders taking place at the end of
his or her term following the earlier of his or her: (i)
15th anniversary of service on our Board or (ii) 73rd
birthday.
•
We have adopted a Code of Business Conduct and
Ethics, which sets forth the basic principles and
guidelines for resolving various legal and ethical
questions that may arise in the workplace and in the
conduct of our business. This code is applicable to
our directors, officers and employees.
•
We have adopted Corporate Governance Guidelines
which, in conjunction with the charters of our Board
committees, provide the framework for the
governance of our company.
•
We have procedures by which any of our
employees, officers or directors may raise concerns
confidentially about our company’s conduct,
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
9
accounting, internal controls or auditing matters
with the Chair of the Board, the independent
directors, or the Chair of the Audit Committee or
through our whistleblower phone hotline or e-mail
inbox.
•
We have adopted an Insider Trading Policy that
prohibits our directors, officers and employees, as
well as those of our subsidiaries from buying or
selling our securities on the basis of material
nonpublic information and prohibits communicating
material nonpublic information about our company
to others. Our Insider Trading Policy prohibits our
directors, officers and employees, from (1) holding
our stock in a margin account as eligible collateral,
or otherwise pledging our stock as collateral for a
loan, or (2) engaging in any hedging transactions
with respect to our equity securities held by them.
•
Our executive officers are subject to two clawback
policies, one that covers financial restatements and
another that covers misconduct.
•
Our executive officers and directors are subject to
stock ownership guidelines and holding restrictions.
•
Stockholders holding 25% of our common stock
have the right to call a special meeting.
Distributions
In accordance with the requirements for maintaining REIT status, we intend to distribute to stockholders aggregate dividends
equaling at least 90% of our REIT taxable income (determined without regard to the deduction of dividends paid and by
excluding any net capital gain) for each taxable year and will endeavor to distribute at least 100% of our REIT taxable income
so as not to be subject to tax. Distributions of economic profits from our enterprise could be classified as return of capital due to
differences between book and tax accounting rules. We may make additional returns of capital when the potential risk-adjusted
returns from new investments fail to exceed our cost of capital. Subject to the limitations of applicable securities and state
corporation laws, we can return capital by making purchases of our own capital stock or through payment of dividends.
Available Information
Our website is www.annaly.com. We make available on this website under “Investors - SEC Filings,” free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as
soon as reasonably practicable after we electronically file or furnish such materials to the SEC pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the “Securities Exchange Act”). Our website and the information contained therein are
not incorporated into this annual report on Form 10-K.
Also posted on our website, and available in print upon request of any stockholder to our Investor Relations Department, are
charters for our Audit Committee, Management Development and Compensation Committee, Nominating/Corporate
Governance Committee, Risk Committee and Corporate Responsibility Committee, our Corporate Governance Guidelines and
our Code of Business Conduct and Ethics. Within the time period required by the SEC, we will post on our website any
amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior
financial officer.
Our Investor Relations Department can be contacted at:
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Investor Relations
Telephone: 888-8ANNALY
E-mail: investor@annaly.com
The SEC also maintains a website that contains reports, proxy and information statements and other information we file with
the SEC at www.sec.gov.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
10
ITEM 1A. RISK FACTORS
An investment in our stock involves a number of risks. Before making an investment decision, you should carefully consider all
of the risks described in this annual report on Form 10-K. If any of the risks discussed in this annual report on Form 10-K
actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to
occur, the trading price of our stock could decline significantly and you may lose all or part of your investment. Readers should
not consider any descriptions of these factors to be a complete set of all potential risks that could affect us.
INDEX TO ITEM 1A. RISK FACTORS
Page
Summary of Risk Factors
12
Risks Related to Our Liquidity and Funding
14
Risks of Ownership of Our Common Stock
19
Compliance, Regulatory & Legal Risks
20
Risks Related to Our Taxation as a REIT
25
Counterparty Risks
31
Investment and Market Related Risks
31
Operational and Cybersecurity Risks
37
Other Risks
43
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
11
Summary of Risk Factors
Risks Related to Our Liquidity and Funding
•
Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses.
•
Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions.
•
We may exceed our overall Company target leverage ratios.
•
We may not be able to consistently achieve our optimal leverage.
•
Failure to procure or renew funding on favorable terms, or at all, affects our results and financial condition.
•
Effectively managing our liquidity affects our results and financial condition.
•
Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing.
•
An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets
adversely affects our profitability.
•
Differences in timing of interest rate adjustments on our interest earning assets and our borrowings affect our profitability.
•
It may be uneconomical to “roll” our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA
contracts.
•
Our use of derivatives exposes us to counterparty and liquidity risks.
•
Securitizations expose us to additional risks.
•
Our use of non-recourse securitizations exposes us to risks which could result in losses to us.
•
Counterparties may require us to enter into restrictive covenants.
•
We may be unable to profitably execute or participate in future securitization transactions.
Risks of Ownership of Our Common Stock
•
Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our
preferred stock.
•
Provisions contained in Maryland law have anti-takeover effects, potentially preventing investors from receiving a “control
premium” for their shares.
•
We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in
the future.
•
Our reported GAAP financial results may not be an accurate indicator of future taxable income and dividend distributions.
Compliance, Regulatory & Legal Risks
•
Accounting rules related to certain of our transactions are highly complex and involve significant judgment and assumptions.
Our application of GAAP produces financial results that fluctuate from one period to another.
•
Any new laws modifying the relationship between Fannie Mae, Freddie Mac and the federal government could affect our
business model or business operations.
•
The Truth in Lending Act or other similar consumer protection laws and regulations expose an owner of whole mortgage
loans and mortgage servicing rights to potential civil and administrative liability.
•
Our Residential Credit and MSR businesses are subject to complex and evolving legal and regulatory requirements,
including how we oversee and are responsible for the actions of our third-party service providers, which exposes us to
increased compliance, legal, and regulatory risk.
•
Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations affects our
business.
•
The focus on environmental, social, and governance and climate change issues by some investors, governmental bodies and
other stakeholders, as well as existing and proposed laws and regulations related to these topics, and any divergence in the
approach to these subjects by investors, governmental bodies and other stakeholders, affects our business, financial results
and reputation.
•
We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data privacy
and security, which increases the cost of doing business, compliance risks and potential liability.
•
We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other
investment accounts, including potential regulatory risks.
•
Loss of our Investment Company Act exemption from registration would adversely affect us.
Risks Related to Our Taxation as a REIT
•
Our failure to maintain our qualification as a REIT would have adverse tax consequences.
•
Our distribution requirements could adversely affect our ability to execute our business plan.
•
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
•
We have flexibility to pay dividends in our own stock.
•
Our TRSs cannot constitute more than 20% of our total assets.
•
TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a
TRS can pay to its parent REIT may be limited by REIT gross income tests.
•
If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a
penalty tax.
•
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
•
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate
otherwise attractive investments.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
12
•
Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.
•
The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to
remain qualified as a REIT.
•
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
•
Qualifying as a REIT involves highly technical and complex provisions of the Code.
•
The tax on prohibited transactions limits our ability to engage in certain transactions.
•
Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our
stockholders.
•
Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
•
Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations.
•
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more
difficult or impossible for us to remain qualified as a REIT.
Counterparty Risks
•
The soundness of our counterparties and other financial institutions affects us.
•
We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential
whole loans if they breach representations and warranties, which could cause us to suffer losses.
•
Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of
the bankruptcy or insolvency of us or our lenders.
Investment and Market Related Risks
•
We may experience declines in the market value of our assets.
•
Investments in MSR expose us to additional risks.
•
A prolonged economic slowdown or declining real estate values could impair the assets we may own.
•
An increase in interest rates adversely affects the market value of our interest earning assets and, therefore, also our book
value.
•
Actions by the Federal Reserve may affect the price and returns of our assets.
•
We invest in securities that are subject to mortgage credit risk.
•
Our investments in real estate and other securities are subject to changes in credit spreads as well as available market
liquidity, which affect our ability to realize gains on the sale of such investments.
•
Geographic concentration exposes investors to greater risk of default and loss.
•
Inadequate property insurance coverage impacts on our operating results.
•
Our assets may become non-performing or sub-performing assets in the future.
•
We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and
warranties.
•
Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all of the
weaknesses in such assets.
•
When we foreclose on an asset, we may come to own the property securing the loan.
•
Proposals to acquire mortgage loans by eminent domain affect the value of our assets.
•
Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior
securities.
•
Our hedging strategies may be costly, and may not hedge our risks as intended.
•
We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of
climate change.
Operational and Cybersecurity Risks
•
Reliance on inaccurate models or the data used by models exposes us to risk.
•
We are highly dependent on information systems and networks, many of which are operated by third parties.
•
Cyberattacks or other information security breaches of our Company’s, service providers’ or counterparties’ systems or
networks affect our business, reputation and financial condition.
•
We may utilize artificial intelligence, which could expose us to liability and affect our business.
•
We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services
related to our business.
•
Our investments in residential whole loans subject us to servicing-related risks.
•
The performance of loans underlying our MSR related assets is affected by the performance of the related mortgage servicer.
•
We are subject to prepayment rate risk.
•
We are subject to reinvestment risk.
•
Competition may affect availability and pricing of our target assets.
•
We may enter into new lines of business, acquire other companies or engage in other strategic initiatives.
•
Some of our investments, including those related to non-prime loans, involve credit risk.
•
Any inability to attract, motivate and retain qualified talent, including our key personnel, affects us.
Other Risks
•
The market price and trading volume of our shares of common stock may be volatile.
•
We may change our policies without stockholder approval.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
13
Risks Related to Our Liquidity and Funding
Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses.
We expect our leverage to vary with market conditions and our assessment of risk/return on investments. We incur this leverage
by borrowing against a substantial portion of the market value of our assets. Leverage, which is fundamental to our investment
strategy, creates significant risks. The risks associated with leverage are more acute during periods of economic slowdown or
recession.
Because of our leverage, we have in the past and may in the future incur substantial losses if our borrowing costs increase, and
we may be unable to execute our investment strategy if leverage is unavailable or is unavailable on attractive terms. The reasons
our borrowing costs may increase or our ability to borrow may decline include, but are not limited to, the following:
•
short-term interest rates increase;
•
the market value of our investments available to
collateralize borrowings decreases;
•
the “haircut” applied to our assets under the
repurchase agreements or other secured financing
arrangements increases;
•
interest rate volatility increases;
•
disruption in the repo market generally or the
infrastructure, including technology infrastructure,
that supports it; or
•
the availability of financing in the market decreases.
Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions.
Because of our leverage, a decline in the value of our interest earning assets has in the past and may in the future result in our
lenders initiating margin calls. A margin call means that the lender requires us to pledge additional collateral to re-establish the
ratio of the value of the collateral to the amount of the borrowing. Borrowings secured by our fixed-rate mortgage-backed
securities generally are more susceptible to margin calls as increases in interest rates tend to more negatively affect the market
value of fixed-rate securities. Margin calls are most likely in market conditions in which the unencumbered assets that we
would use to meet the margin calls have also decreased in value. The risks associated with margin calls are more acute during
periods of economic slowdown or recession.
If we are unable to satisfy margin calls, our lenders may foreclose on our collateral. This could force us to sell our interest
earning assets under adverse market conditions, or allow lenders to sell those assets on our behalf at prices that could be below
our estimation of their value. Additionally, in the event of our bankruptcy, our borrowings, which are generally made under
repurchase agreements, may qualify for special treatment under the U.S. Bankruptcy Code. This special treatment would allow
the lenders under these agreements to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to liquidate the
collateral under these agreements without delay.
We may exceed our overall Company target leverage ratios.
We generally expect to maintain an overall Company economic leverage ratio of less than 10:1. However, we are not required
to stay below this economic leverage ratio. We may exceed this ratio by incurring additional debt without increasing the
amount of equity we have. For example, if we increase the amount of borrowings under our master repurchase agreements or
other borrowing arrangements with our existing or new counterparties or the market value of our portfolio declines, our
economic leverage ratio would increase. If we increase our economic leverage ratio, the adverse impact on our financial
condition and results of operations from the types of risks associated with the use of leverage would likely be more severe. Our
target economic leverage ratio is set for the portfolio as a whole, rather than separately for each asset type. The economic
leverage ratio on Agency mortgage-backed securities has in the past and may in the future exceed the target ratio for the
portfolio as a whole. Because credit assets are generally less levered than Agency mortgage-backed securities, at a given
economic leverage ratio an increased allocation to credit assets generally means an increase in economic leverage on Agency
mortgage-backed securities. The economic leverage on our Agency mortgage-backed securities is the primary driver of the risk
of being unable to meet margin calls discussed above.
We may not be able to consistently achieve our optimal leverage.
We use leverage as a strategy to increase the return to our investors. However, we may not be able to consistently achieve our
desired leverage if we determine that the leverage would expose us to excessive risk, our lenders do not make funding available
to us at acceptable rates, or our lenders require that we provide additional collateral to cover our borrowings.
Failure to procure or renew funding on favorable terms, or at all, affects our results and financial condition.
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One or more of our lenders could be unwilling or unable to provide us with financing. This potentially increases our financing
costs and reduces our liquidity. Furthermore, if any of our potential lenders or existing lenders are unwilling or unable to
provide us with financing or if we are not able to renew or replace maturing borrowings, we could be forced to sell our assets at
an inopportune time when prices are depressed. Our business, results of operations and financial condition have in the past and
may in the future be materially affected by disruptions in the financial markets. We cannot assure you that these markets will
remain an efficient source of financing for our assets. If our strategy is not viable, we will have to find alternative forms of
financing for our assets, which may not be available. Further, as a REIT, we are required to distribute annually at least 90% of
our REIT taxable income (subject to certain adjustments) to our stockholders and are, therefore, not able to retain significant
amounts of our earnings for new investments. We cannot assure you that any, or sufficient, funding or capital will be available
to us in the future on terms that are acceptable to us. If we cannot obtain sufficient funding on acceptable terms, there may be a
negative impact on the market price of our common stock and our ability to make distributions to our stockholders. Moreover,
our ability to grow will be dependent on our ability to procure additional funding. To the extent we are not able to raise
additional funds through the issuance of additional equity or borrowings, our growth will be constrained.
Effectively managing our liquidity affects our results and financial condition.
Our ability to meet cash needs depends on many factors, several of which are beyond our control. Ineffective management of
liquidity levels could cause us to be unable to meet certain financial obligations. Potential conditions that could impair our
liquidity include: unwillingness or inability of any of our potential lenders to provide us with or renew financing, margin calls,
additional capital requirements applicable to our lenders, a disruption in the financial markets or declining confidence in our
creditworthiness or in financial markets in general. These conditions have in the past and may in the future force us to sell our
assets at inopportune times or otherwise cause us to potentially revise our strategic business initiatives.
Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing.
Our results of operations are materially affected by conditions in the markets for mortgages and mortgage-related assets,
including Agency mortgage-backed securities, as well as the broader financial markets and the economy generally.
Significant adverse changes in financial market conditions can result in a deleveraging of the global financial system and the
forced sale of large quantities of mortgage-related and other financial assets. Concerns over economic recession, pandemic
diseases, geopolitical issues, trade wars, unemployment, inflation, government actions to combat inflation, rising interest rates,
the availability and cost of financing, the mortgage market, the repurchase agreement market, a declining real estate market or
prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and
markets.
For example, as a result of the financial crises beginning in the summer of 2007 and through the subsequent credit and housing
crisis, many traditional mortgage investors suffered severe losses in their residential mortgage portfolios and several major
market participants failed or were impaired, resulting in a significant contraction in market liquidity for mortgage-related assets.
This illiquidity negatively affected both the terms and availability of financing for all mortgage-related assets.
Volatility and deterioration in the markets for mortgages and mortgage-related assets as well as the broader financial markets
may adversely affect the performance and market value of our Agency mortgage-backed securities. If these conditions exist,
institutions from which we seek financing for our investments may tighten their lending standards or become insolvent, which
could make it more difficult for us to obtain financing on favorable terms or at all. Our profitability and financial condition
may be adversely affected if we are unable to obtain cost-effective financing for our investments.
An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets
adversely affects our profitability.
We generally earn money based upon the spread between the interest payments we earn on our interest earning assets and the
interest payments we must make on our borrowings. Our profitability is affected if the interest payments on our borrowings
increase relative to the interest we earn on our interest earning assets. A significant portion of our assets are longer-term, fixed-
rate interest earning assets, and a significant portion of our borrowings are shorter-term, floating-rate borrowings. Periods of
rising interest rates or a relatively flat or inverted yield curve could decrease or eliminate the spread between the interest
payments we earn on our interest earning assets and the interest payments we must make on our borrowings.
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Differences in timing of interest rate adjustments on our interest earning assets and our borrowings affect our profitability.
We rely primarily on short-term borrowings to acquire interest earning assets with long-term maturities. Some of the interest
earning assets we acquire are adjustable-rate interest earning assets. This means that their interest rates may vary over time
based upon changes in an objective index, such as:
•
Treasury Rate. A monthly or weekly average yield
of benchmark U.S. Treasury securities, as published
by the Federal Reserve Board.
•
Secured Overnight Financing Rate (“SOFR”). A
measure of the cost of borrowing cash overnight
collateralized by U.S. Treasury securities, as
published by the Federal Reserve Bank of New
York.
•
Term SOFR. A benchmark based on Secured
Overnight Financing Rate futures, administered by
CME Group.
These indices generally reflect short-term interest rates. The interest rates on our borrowings similarly reflect short-term interest
rates. Nevertheless, the interest rates on our borrowings generally adjust more frequently than the interest rates on our
adjustable-rate interest earning assets, which are also typically subject to periodic and lifetime interest rate caps. Accordingly,
in a period of rising interest rates, we could experience a decrease in net income or a net loss because the interest rates on our
borrowings adjust faster than the interest rates on our adjustable-rate interest earning assets.
It may be uneconomical to “roll” our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA
contracts.
From time to time, we enter into TBAs as an alternate means of investing in and financing Agency mortgage-backed securities.
A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified
issuer, term and coupon. A TBA dollar roll represents a transaction where TBA contracts with the same terms but different
settlement dates are simultaneously bought and sold. The TBA contract settling in the later month typically prices at a discount
to the earlier month contract with the difference in price commonly referred to as the “drop”. The drop is a reflection of the
expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing
cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month. The drop
between the current settlement month price and the forward settlement month price occurs because in the TBA dollar roll
market, the party providing the implied financing is the party that would retain all principal and interest payments accrued
during the financing period. Accordingly, TBA dollar roll income generally represents the economic equivalent of the net
interest income earned on the underlying Agency mortgage-backed security less an implied financing cost. Consequently,
dollar roll transactions and such forward purchases of Agency securities represent a form of off-balance sheet financing and
increase our “at risk” leverage.
The economic return of a TBA dollar roll generally equates to interest income on a generic TBA-eligible security less an
implied financing cost, and there may be situations in which the implied financing cost exceeds the interest income, resulting in
a negative carry on the position. If we roll our TBA dollar roll positions when they have a negative carry, the positions would
decrease net income and amounts available for distributions to shareholders.
There have in the past and may in the future be situations in which we are unable or unwilling to roll our TBA dollar roll
positions. The TBA transaction could have a negative carry or otherwise be uneconomical, we may be unable to find
counterparties with whom to trade in sufficient volume, or we may be required to collateralize the TBA positions in a way that
is uneconomical. Because TBA dollar rolls represent implied financing, an inability or unwillingness to roll has effects similar
to any other loss of financing. If we do not roll our TBA positions prior to the settlement date, we would have to take physical
delivery of the underlying securities and settle our obligations for cash. We may not have sufficient funds or alternative
financing sources available to settle such obligations. Counterparties may also make margin calls as the value of a generic
TBA-eligible security (and therefore the value of the TBA contract) declines. Margin calls on TBA positions or failure to roll
TBA positions could have the effects described in the liquidity risks described above.
Our use of derivatives exposes us to counterparty and liquidity risks.
Most swaps that we enter into must be executed on a Swap Extension Facility and/or be cleared by a Derivatives Clearing
Organization (“DCO”), both of which are regulated by the CFTC. DCOs are subject to regulatory oversight and use extensive
risk management processes, which result in expenses and collateral requirements for our swaps. We access the DCO through
several Futures Commission Merchants (“FCMs”). For any cleared swap, we bear the credit risk of both the DCO and the
relevant FCM, in the form of potential late or unrecoverable payments, potential difficulty or delay in accessing collateral that
we have posted, and potential loss of any positive market value of the swap position. In the event of a default by the DCO or
FCM, we also bear market risk, if the asset or liability being hedged is no longer effectively hedged.
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We also bear fees for use of the DCO and Swap Execution Facility, as well as risks associated with trade errors. Because the
standardized swaps available on Swap Execution Facilities and cleared through DCOs are not fully customizable, we may bear
basis risk from hedge positions that do not exactly reflect the interest rate risk on the asset being hedged.
Futures transactions are subject to risks analogous to those of cleared swaps, except that for futures transactions we bear a
higher risk that collateral we have posted is unavailable to us if the FCM defaults.
Some derivatives transactions, such as swaptions, are not currently required to be cleared through a DCO. Therefore, we bear
the credit risk of the dealer with which we executed the swaption or other uncleared transaction. TBA contracts and swaps on
CMBX indexes are also not cleared, and we bear the credit risk of the dealer.
Certain derivative transactions are subject to margin requirements. The relevant contract or clearinghouse rules dictate the
method of determining the required amount of margin, the types of collateral accepted and the timing required to meet margin
calls. Additionally, for cleared swaps and futures, FCMs may have the right to require more margin than the clearinghouse
requires. The requirement to meet margin calls can create liquidity risks, and we bear the cost of funding the margin that we
post. Also, as discussed above, we bear credit risk if a dealer, FCM, or clearinghouse is holding collateral we have posted.
Generally, we attempt to retain the ability to close out of a hedging position or create an offsetting position. However, in some
cases we may not be able to do so at economically viable prices, or we may be unable to do so without consent of the
counterparty. Therefore, in some situations a derivative position can be illiquid, forcing us to hold it to its maturity or scheduled
termination date.
It is possible that new regulations could be issued governing the derivatives market, including requiring additional types of
derivatives to be executed on Swap Execution Facilities or cleared through a DCO. Ongoing regulatory change in this area
could increase costs, increase risks, and adversely affect our business and results of operations.
Securitizations expose us to additional risks.
In a securitization structure, we convey a pool of assets to a special purpose vehicle, the issuing entity, and in turn the issuing
entity issues one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes are secured by the pool
of assets. In exchange for the transfer of assets to the issuing entity, we receive the cash proceeds of the sale of non-recourse
notes and a 100% interest in certain subordinate interests of the issuing entity. The securitization of all or a portion of our
residential loan portfolio might magnify our exposure to losses because any subordinate interest we retain in the issuing entity
would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to
a securitized pool of assets before the owners of the notes experience any losses. Moreover, we cannot assure you that we will
be able to access the securitization market or be able to do so at favorable rates. The inability to securitize our portfolio could
adversely affect our performance and our ability to grow our business.
Our use of non-recourse securitizations exposes us to risks which could result in losses to us.
We utilize non-recourse securitizations of our assets in mortgage loans, especially loans that we originate, when they are
available. Prior to any such financing, we have in the past sought and may in the future seek to finance assets with relatively
short-term facilities until a sufficient portfolio is accumulated. As a result, we would be subject to the risk that we would not be
able to acquire, during the period that any short-term facilities are available, sufficient eligible assets to maximize the efficiency
of a securitization. We also would bear the risk that we would not be able to obtain a new short-term facility or would not be
able to renew any short-term facilities after they expire should we need more time to seek and acquire sufficient eligible assets
for a securitization. In addition, conditions in the capital markets, including potential volatility and disruption in the capital and
credit markets, may not permit a non-recourse securitization at any particular time or may make the issuance of any such
securitization less attractive to us even when we do have sufficient eligible assets. While we would intend to retain the non-
investment grade tranches of securitizations and, therefore, still have exposure to any assets included in such securitizations, our
inability to enter into such securitizations would increase our overall exposure to risks associated with direct ownership of such
assets, including the risk of default. Our inability to refinance any short-term facilities would also increase our risk because
borrowings thereunder would likely be recourse to us as an entity. If we are unable to obtain and renew short-term facilities or
to consummate securitizations to finance our assets on a long-term basis, we may be required to seek other forms of potentially
less attractive financing or to liquidate assets at an inopportune time or price. To the extent that we are unable to obtain
financing for our assets, and to the extent that we retain such assets in our portfolio, our returns on investment and earnings will
be negatively impacted.
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Counterparties may require us to enter into restrictive covenants.
Certain lenders and counterparties impose restrictions on us that would affect our ability to incur additional debt, make certain
allocations or acquisitions, allow liquidity or stockholders’ equity to fall below certain levels, increase leverage, make
distributions to our stockholders, or redeem debt or equity securities, and may impact our flexibility to determine our operating
policies and strategies. In some situations, these restrictions could be breached due to changes in the market value of our assets
or liabilities. One way to avoid breaching certain of these restrictions is to sell assets or reduce leverage at an inopportune time.
Failing to meet or satisfy any of these covenants is a default under these agreements, and our lenders or counterparties could
elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral
and enforce their interests against existing collateral. A default under one agreement can trigger cross-default rights under other
agreements. A default and resulting repayment acceleration could significantly reduce our liquidity, which could require us to
sell our assets to repay amounts due and outstanding. This could also significantly harm our business, financial condition,
results of operations and ability to make distributions, which could cause our share price to decline. A default could also
significantly limit our financing alternatives such that we would be unable to pursue our leverage strategy, which could
adversely affect our returns.
We may be unable to profitably execute or participate in future securitization transactions.
There are a number of factors that can have a significant impact on whether we are able to execute or participate in a
securitization transaction, and whether such a transaction is profitable to us or results in a loss. One of these factors is the price
we pay for the mortgage loans that we securitize, which, in the case of residential mortgage loans, is impacted by the level of
competition in the marketplace for acquiring mortgage loans and the relative desirability to originators of retaining mortgage
loans as investments or selling them to third parties such as us. As such, we can provide no assurance that we will be able to
identify and make investments in residential mortgage loans at attractive levels and pricing, which could adversely affect our
ability to execute future securitizations in this space. Another factor that impacts the profitability of a securitization transaction
is the cost to us of the short-term warehouse financing facilities that we use to finance our holdings of mortgage loans prior to
securitization, which cost is affected by a number of factors including the availability of this type of financing to us, the interest
rate on this type of financing, the duration of the financing we incur, and the percentage of our mortgage loans for which third
parties are willing to provide short-term financing. After we acquire mortgage loans that we intend to securitize, we can also
suffer losses if the value of those loans declines prior to securitization. Declines in the value of a mortgage loan, for example,
can be due to, among other things, changes in interest rates, changes in the credit quality of the loan, and changes in the
projected yields required by investors to invest in securitization transactions. To the extent we seek to hedge against a decline in
loan value due to changes in interest rates, there is a cost of hedging that also affects whether a securitization is profitable.
Other factors that can significantly affect whether a securitization transaction is profitable to us include the criteria and
conditions that rating agencies apply and require when they assign ratings to the mortgage-backed securities issued in our
securitization transactions, including the percentage of mortgage-backed securities issued in a securitization transaction that the
rating agencies will assign a triple-A rating to, which is also referred to as a rating agency subordination level. Rating agency
subordination levels can be impacted by numerous factors, including, without limitation, the credit quality of the loans
securitized, the geographic distribution of the loans to be securitized, the structure of the securitization transaction and other
applicable rating agency criteria. All other factors being equal, the greater the percentage of the mortgage-backed securities
issued in a securitization transaction that the rating agencies will assign a triple-A rating to, the more profitable the transaction
will be to us.
The price that investors in mortgage-backed securities will pay for securities issued in our securitization transactions also has a
significant impact on the profitability of the transactions to us, and these prices are impacted by numerous market forces and
factors. In addition, the underwriter(s) or placement agent(s) we select for securitization transactions, and the terms of their
engagement, impacts the profitability of our securitization transactions. Also, transaction costs incurred in executing
transactions impact the profitability of our securitization transactions and any liability that we may incur, or may be required to
reserve for, in connection with executing a transaction can cause a loss to us. To the extent that we are not able to profitably
execute future securitizations of residential mortgage loans or other assets, including for the reasons described above or for
other reasons, it could have a material adverse impact on our business and financial results.
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Risks of Ownership of Our Common Stock
Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our
preferred stock.
To maintain our qualification as a REIT for U.S. federal income tax purposes, not more than 50% in value of the outstanding
shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal tax laws
to include certain entities). For the purpose of preserving our REIT qualification and for other reasons, our charter prohibits
direct or constructive ownership by any person of more than 9.8% of the total number or value of any class of our outstanding
common stock or any class of our preferred stock. Our charter’s constructive ownership rules are complex and may cause the
outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% of the outstanding shares of any class of common stock or any class of
our preferred stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of
the outstanding shares of such class of stock and thus be subject to our charter’s ownership limit. Any attempt to own or
transfer shares of our common stock or preferred stock in excess of the ownership limit without the consent of the Board shall
be void, or, alternatively, will result in the shares being transferred by operation of law to a charitable trust. Our Board, in its
sole and absolute discretion, may waive or modify the ownership limit with respect to one or more persons who would not be
treated as “individuals” if it is satisfied that ownership in excess of this limit will not otherwise jeopardize our status as a REIT
for U.S. federal income tax purposes. The ownership limit may have the effect of delaying, deferring or preventing a change in
control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market
price for our stock in connection with a change in control.
Provisions contained in Maryland law have anti-takeover effects, potentially preventing investors from receiving a “control
premium” for their shares.
Provisions contained in our charter and bylaws, as well as the Maryland General Corporation Law (the “MGCL”), have anti-
takeover effects that could delay, defer or prevent a takeover attempt, which may prevent stockholders from receiving a
“control premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or
purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for
their common stock over then-prevailing market prices. These provisions include the following:
•
Ownership limit. The ownership limit in our charter
limits related investors including, among other
things, any voting group, from acquiring over 9.8%
of any class our common stock or of our preferred
stock, in each case, in number of shares or value,
without the consent of our Board.
•
Preferred Stock. Our charter authorizes our Board to
issue preferred stock in one or more classes and to
establish the preferences and rights of any class of
preferred stock issued. These actions can be taken
without soliciting stockholder approval.
•
Maryland Business Combination Act. The Maryland
Business Combination Act provides that, subject to
certain exceptions and limitations, certain business
combinations between a Maryland corporation and
an “interested stockholder” (defined generally as
any person who beneficially owns 10% or more of
the voting power of our outstanding voting stock or
an affiliate or associate of ours who, at any time
within the two-year period immediately prior to the
date in question, was the beneficial owner of 10% or
more of the voting power of our then outstanding
shares of stock) or an affiliate of any interested
stockholder are prohibited for five years after the
most recent date on which the stockholder becomes
an interested stockholder, and thereafter imposes
two super-majority stockholder voting requirements
on these combinations, unless, among other
conditions, our common stockholders receive a
minimum price, as defined in the MGCL, for their
shares of stock and the consideration is received in
cash or in the same form as previously paid by the
interested stockholder for its shares of stock. We
have opted out of the Maryland Business
Combination Act in our charter. However, if we
amend our charter to opt back in to the statute,
subject to stockholder approval, the Maryland
Business Combination Act could have the effect of
discouraging offers to acquire us and of increasing
the difficulty of consummating any such offers, even
if our acquisition would be in our stockholders’ best
interests.
•
Maryland Control Share Acquisition Act. The
Maryland Control Share Acquisition Act provides
that, subject to certain exceptions, holders of
“control shares” (defined as voting shares that, when
aggregated with all other shares controlled by the
stockholder, entitle the stockholder to exercise one
of three increasing ranges of voting power in
electing directors) acquired in a “control share
acquisition” (defined as the direct or indirect
acquisition of ownership or control of issued and
outstanding “control shares”) have no voting rights
except to the extent approved by our stockholders by
the affirmative vote of at least two-thirds of all the
votes entitled to be cast on the matter, excluding
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shares owned by the acquirer, by our officers, or by
our employees who are also directors of our
company. We are currently subject to the Maryland
Control Share Acquisition Act.
•
Title 3, Subtitle 8 of the MGCL: These provisions
of the MGCL permit our Board of Directors,
without stockholder approval and regardless of what
is provided in our charter or bylaws, to implement
certain takeover defenses, including adopting a
classified board or increasing the vote required to
remove a director.
We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in
the future.
We intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that all or substantially all
of our taxable income in each year (subject to certain adjustments) is distributed. This enables us to qualify for the tax benefits
accorded to a REIT under the Code. We have not established a minimum dividend payment level and our ability to pay
dividends may be adversely affected for the reasons described in this section. All distributions will be made at the discretion of
our Board and will depend on our earnings, our financial condition, maintenance of our REIT status and such other factors as
our Board may deem relevant from time to time.
Our reported GAAP financial results may not be an accurate indicator of future taxable income and dividend distributions.
Generally, the cumulative net income we report over the life of an asset will be the same for GAAP and tax purposes, although
the timing of this income recognition over the life of the asset could be materially different. Differences exist in the accounting
for GAAP net income and REIT taxable income that have in the past and may in the future lead to significant variances in the
amount and timing of when income and losses are recognized under these two measures. Due to these differences, our reported
GAAP financial results could materially differ from our determination of taxable income.
Compliance, Regulatory & Legal Risks
Accounting rules related to certain of our transactions are highly complex and involve significant judgment and
assumptions. Our application of GAAP produces financial results that fluctuate from one period to another.
Accounting rules for valuations of investments, mortgage loan sales and securitizations, investment consolidations, acquisitions
of real estate and other aspects of our operations are highly complex and involve significant judgment and assumptions. These
complexities could lead to a delay in preparation of financial information and the delivery of this information to our
stockholders. Changes in accounting interpretations or assumptions have in the past and may in the future impact our financial
statements and our ability to prepare our financial statements in a timely fashion. Our inability to prepare our financial
statements in a timely fashion in the future would likely adversely affect our share price significantly. The fair value at which
our assets may be recorded may not be an indication of their realizable value. Ultimate realization of the value of an asset
depends to a great extent on economic and other conditions. Further, fair value is only an estimate based on good faith
judgment of the price at which an investment can be sold since market prices of investments can only be determined by
negotiation between a willing buyer and seller. If we were to liquidate a particular asset, the realized value may be more than or
less than the amount at which such asset was recorded. Accordingly, the value of our common shares has in the past and may in
the future be adversely affected by our determinations regarding the fair value of our investments, whether in the applicable
period or in the future. Additionally, such valuations may fluctuate over short periods of time.
We have made certain accounting elections which may result in volatility in our periodic net income, as computed in
accordance with GAAP. For example, changes in fair value of certain instruments are reflected in GAAP net income (loss)
while others are reflected in Other comprehensive income (loss).
Any new laws modifying the relationship between Fannie Mae, Freddie Mac and the federal government could affect our
business model or business operations.
The interest and principal payments we expect to receive on the Agency mortgage-backed securities in which we invest are
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Principal and interest payments on Ginnie Mae certificates are directly
guaranteed by the U.S. government. Principal and interest payments relating to the securities issued by Fannie Mae and Freddie
Mac are only guaranteed by each respective Agency.
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In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal regulator,
pursuant to its powers under The Federal Housing Finance Regulatory Reform Act of 2008, a part of the Housing and
Economic Recovery Act of 2008. In addition to FHFA becoming the conservator of Fannie Mae and Freddie Mac, the U.S.
Department of the Treasury entered into Preferred Stock Purchase Agreements with the FHFA and have taken various actions
intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability. For
example, in September 2019, FHFA and the U.S. Department of the Treasury agreed to modifications to the Preferred Stock
Purchase Agreements that will permit Fannie Mae and Freddie Mac to maintain capital reserves of $25 billion and $20 billion,
respectively. In January 2025, the FHFA and the U.S. Department of the Treasury under the Biden Administration announced
an agreement with each of Fannie Mae and Freddie Mac to modify the Preferred Stock Purchase Agreements to help ensure that
the eventual release of Fannie Mae and Freddie Mac from conservatorship will be orderly and reflect certain existing practices.
In addition, under a separate side letter from FHFA to the U.S. Department of the Treasury, FHFA will solicit public input,
before releasing either Fannie Mae or Freddie Mac from conservatorship, regarding the potential impacts on the housing market
and Fannie Mae and Freddie Mac.
Since Fannie Mae and Freddie Mac were placed in federal conservatorship, the guarantee payment structure of Fannie Mae and
Freddie Mac in the U.S. housing finance market has been discussed and re-examined by regulators and administrations.
Members of the Trump Administration have recently discussed changes to Fannie Mae and Freddie Mac, although any final
changes or approach remains uncertain. The future roles of Fannie Mae and Freddie Mac could be significantly reduced and the
nature of their guarantees could be eliminated or considerably limited relative to historical measurements. The U.S. Treasury
could also stop providing credit support to Fannie Mae and Freddie Mac in the future. Any changes to the nature of the
guarantees provided by Fannie Mae and Freddie Mac could redefine what constitutes an Agency mortgage-backed security and
could have broad adverse market implications. While the likelihood that major mortgage finance system reform will be enacted
in the short term remains uncertain due to political and practical complexities of the topic, it is possible that the adoption of any
such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations. A
reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may
adversely affect the mortgage markets generally and adversely affect the ability of mortgagors to refinance their mortgage
loans. In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in
general. If Fannie Mae or Freddie Mac was eliminated, or their structures were to change in a material manner that is not
compatible with our business model, we would not be able to acquire Agency mortgage-backed securities from these entities,
which could adversely affect our business operations.
The Truth in Lending Act or other similar consumer protection laws and regulations expose an owner of whole mortgage
loans and mortgage servicing rights to potential civil and administrative liability.
Residential mortgage loan originators and servicers are required to comply with various federal, state and local laws and
regulations, including anti-predatory lending laws and laws and regulations imposing certain restrictions on requirements on
high-cost loans. For example, the federal Home Ownership and Equity Protection Act of 1994 (“HOEPA”), prohibits inclusion
of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels
and requires that borrowers be given certain disclosures prior to origination. Failure of residential mortgage loan originators or
servicers to comply with these laws, to the extent any of their residential mortgage loans become part of our investment
portfolio, could subject us, as an assignee or purchaser of the related residential mortgage loans, to reputational harm, monetary
penalties and the risk of the borrowers rescinding the affected residential mortgage loans. Lawsuits have been brought in
various states making claims against assignees or purchasers of high-cost loans for violations of state law. Named defendants in
these cases have included numerous participants within the secondary mortgage market. If loans in our portfolio are found to
have been originated in violation of predatory or abusive lending laws, we could incur losses that would materially adversely
affect our business.
Our business is subject to, or affected by, numerous regulations, including regulations regarding mortgage loan servicing,
underwriting, and loan originator compensation and others that could be issued in the future. For example, the CFPB’s “ability-
to-repay” and “qualified mortgage” regulations impact the terms and conditions of all originated residential mortgage loans.
Additionally, the CFPB has enforcement authority and broad discretionary regulatory authority to prohibit or condition terms,
acts or practices relating to residential mortgage loans that the CFPB finds abusive, unfair, deceptive, or predatory, as well as to
take other actions that the CFPB finds are necessary or proper to ensure responsible affordable mortgage credit remains
available to consumers. These requirements can and do change as statutes and regulations are enacted, promulgated, amended,
and interpreted, and the recent trends among federal and state lawmakers and regulators have been toward increasing
compliance obligations in laws, regulations, and investigative procedures concerning the mortgage industry generally. As a
result, we are unable to fully predict how laws or regulations that may be adopted in the future, will affect our business, results
of operations and financial condition, or the environment for repurchase financing and other forms of borrowing, the investing
environment for Agency MBS, non-Agency mortgage-backed securities and/or residential mortgage, and MSR.
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Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and
requirements greater than those in place under federal laws and regulations. In addition, under the anti-predatory lending laws
of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans
under applicable law, must satisfy a net tangible benefits test with respect to the borrower. This test, as well as certain standards
set forth in the “ability-to-repay” and “qualified mortgage” regulations, may be highly subjective and open to interpretation. As
a result, a court may determine that a residential mortgage loan did not meet the applicable standard or test even if the originator
reasonably believed such standard or test had been satisfied. Failure of residential mortgage loan originators or servicers to
comply with federal consumer protection laws and regulations could subject us, as an assignee or purchaser of these loans (or as
an investor in securities backed by these loans), to monetary penalties and defenses to foreclosure, including by recoupment or
setoff of damages and costs, which for some violations included the sum of all finance charges and fees paid by the consumer,
and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and
financial results.
The CFPB and other regulators (including the Federal Trade Commission) have provided multiple forms of guidance and
promulgated multiple rules on the general subject of what the CFPB refers to as “junk fees.” For example, in April 2024, the
CFPB took certain actions intended to stop illegal “junk fees” in the mortgage servicing industry, and in May 2024, the CFPB
launched a public inquiry into “junk fees” associated with mortgage closing costs. It is possible that industry standard charges
could be impacted through future regulatory action. The cost of whole loans and the servicing income derived from owning
MSR could be affected by the CFPB categorizing any currently permissible fee or charge as “junk.”
Our Residential Credit and MSR businesses are subject to complex and evolving legal and regulatory requirements,
including how we oversee and are responsible for the actions of our third-party service providers, which exposes us to
increased compliance, legal, and regulatory risk.
While we are not required to obtain licenses to purchase mortgage-backed securities, the purchase of residential mortgage loans
and certain business purpose mortgage loans in the secondary market requires us to maintain various state licenses. Acquiring
the right to service residential mortgage loans and certain business purpose mortgage loans also requires us to maintain various
state licenses, even though we currently do not expect to directly engage in loan servicing ourselves. Furthermore, we are
required to comply with various information reporting and other regulatory requirements to maintain our licenses, and there is
no assurance that we will be able to satisfy those requirements or other regulatory requirements applicable to our businesses of
acquiring and servicing mortgage loans on an ongoing basis. Our failure to obtain or maintain required licenses or our failure to
comply with regulatory requirements that are applicable to our businesses of acquiring and servicing mortgage loans may
restrict our Residential Credit and MSR businesses and investment options and could harm our businesses and expose us to
penalties or other claims.
Although we utilize unaffiliated servicing companies to carry out the actual servicing of MSR and the loans we purchase
together with the related MSR (including all direct interface with the borrowers), we are ultimately responsible, vis-à-vis the
borrowers and state and federal regulators, for ensuring that the loans and MSR are serviced in accordance with the terms of the
related loans and mortgages and applicable law and regulation. To manage this risk, we have a robust process that monitors the
activities of the third party servicers. This oversight process is also subject t o regulatory requirements and expectations that we
are expected to meet.
Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations affects our
business.
We are subject to regulation by laws at the local, state and federal level, including securities and tax laws and financial
accounting and reporting standards. These laws and regulations, as well as their interpretation, may be changed from time to
time and result in enhanced disclosure obligations. These regulations are complex, and there is no assurance that a court or
regulator will not determine that we have materially failed to comply.
Accordingly, any change in these laws or regulations or the failure to comply with these laws or regulations could have a
material adverse impact on our business. Certain of these laws and regulations pertain specifically to REITs.
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The focus on environmental, social, and governance and climate change issues by some investors, governmental bodies and
other stakeholders, as well as existing and proposed laws and regulations related to these topics, and any divergence in the
approach to these subjects by different investors, governmental bodies and other stakeholders, affects our business, financial
results and reputation.
Our business faces increasing public scrutiny related to environmental, social, and governance activities. A variety of
organizations measure the performance of companies on such topics, and the results of these assessments are widely publicized.
Major institutional investors have publicly emphasized the importance of such measures to their investment decisions. These
issues are also increasingly important to the general public and the media, and actual or perceived underperformance with
respect to these topics could result in negative press or sentiment with respect to our business. In addition, actual or perceived
effects of climate change could negatively impact house prices, housing-related costs, and borrower behavior.
There is also governmental and regulatory interest across jurisdictions in improving the definition, measurement and disclosure
of environmental, social, and governance factors in order to allow investors to validate and better understand related claims. To
the extent we communicate environmental, social, and governance or climate-related statements, initiatives, commitments or
goals in our SEC filings or in other disclosures, we face the risk of being accused of “greenwashing” to the extent our practices
and policies do not match such claims. In addition, the SEC has established a climate and environmental, social, and
governance task force to develop initiatives to identify related misconduct consistent with increased investor reliance on climate
and environmental, social, and governance related disclosure and investment. As a result, the SEC has brought enforcement
actions based on such disclosures not matching actual investment processes.
In addition, the SEC under the Biden Administration finalized a rule requiring the disclosure of certain greenhouse gas
emissions and climate-related risks; however, its enforcement has been stayed pending litigation challenging the rule. It remains
to be seen what impact the Trump Administration will have on the SEC’s climate rule and the SEC’s climate and
environmental, social, and governance task force and enforcement actions more generally; however, President Trump's
campaign indicated that his administration will likely take a different approach to environmental, social and governance
matters. In addition, in recent years “anti-environmental, social and governance” sentiment has increased in parts of the U.S.,
with several states and Congress having proposed or enacted “anti-environmental, social and governance” policies, legislation,
or initiatives or issued related legal opinions. As such, we face increased scrutiny from stakeholders and governmental bodies
who have diverging views related to business practices and company activities related to environmental, social and governance
topics and climate change, which could result in reputational harm, litigation and other adverse consequences.
Similar laws and regulations related to the disclosure and/or diligence of environmental, social, and governance and climate
change-related risks have been enacted or proposed in U.S. states such as California, as well as the European Union and other
jurisdictions. In addition, going forward, different jurisdictions at the state, federal and international level may pursue diverging
approaches to environmental, social and governance and climate change-related matters. Compliance with any such new laws
or regulations, and any diverging approaches to such laws and regulations in different jurisdictions, increases our regulatory
burden and could make compliance more difficult and expensive, affect the manner in which we conduct our business and
adversely affect our profitability and returns to our investors.
We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data
privacy and security, which increases the cost of doing business, compliance risks and potential liability.
We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations relating to data privacy
and the security of personal information, and any failure to comply with these laws, regulations, rules, standards and contractual
obligations could expose us to liability and/or reputational damage. The legal and regulatory environment surrounding data
privacy and security in the U.S. and international jurisdictions is constantly evolving. New business initiatives have increased,
and may continue to increase, the extent to which we are subject to such U.S. and international data privacy and security
regulations. As new data privacy and security-related laws, regulations, rules and standards are implemented, the time and
resources needed for us to comply with such laws, regulations, rules and standards, as well as our potential liability for non-
compliance and reporting obligations in the case of cyberattacks, information security breaches or other similar incidents, may
significantly increase. Compliance with these laws, regulations, rules and standards may require us to change our policies,
procedures and technology for information security, which could, among other things, make us more vulnerable to operational
failures and to monetary penalties for breach of such laws, regulations, rules and standards.
In the U.S., there are numerous federal, state and local data privacy and security laws and regulations governing the collection,
sharing, use, retention, disclosure, security, storage, transfer and other processing of personal information. At the federal level,
we are subject to, among other laws and regulations, the Gramm Leach Bliley Act (which regulates the confidentiality and
security of customer information obtained by financial institutions and certain other types of financial services businesses) and
regulations under it. Additionally, numerous states have enacted, or are in the process of enacting or considering,
comprehensive state-level data privacy and security laws and regulations. Moreover, laws in all 50 U.S. states require
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Item 1A. Risk Factors
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businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a
result of a data breach.
Further, when required by applicable laws, regulations, rules and industry standards, we strive to provide or cause our service
providers to provide privacy policies which are accurate and comprehensive. We cannot, however, ensure that the disclosure of
these privacy policies and other statements regarding our practices will be sufficient to protect us from claims, proceedings,
liability or adverse publicity relating to data privacy and security or with respect to the legally permissible sharing of data.
Although we endeavor to comply with our privacy policies and to ensure our service providers do the same, occurrence or
allegations of noncompliance are possible and could subject us to potential government or legal action, including action based
on arguments that the publication of these policies were deceptive, unfair, or misrepresentative of our actual practices. Any
concerns about our data privacy and security practices, even if unfounded, could damage our reputation and adversely affect our
business.
Any failure or perceived failure by us to comply with our privacy policies, or applicable data privacy and security laws,
regulations, rules, standards or contractual obligations, or any compromise of security that results in unauthorized access to, or
unauthorized loss, destruction, use, modification, acquisition, disclosure, release or transfer of personal information, may result
in requirements to modify or cease certain operations or practices, the expenditure of substantial costs, time and other resources,
proceedings or actions against us, legal liability, governmental investigations, enforcement actions, claims, fines, judgments,
awards, penalties, sanctions and costly litigation (including class actions). Any of the foregoing could harm our reputation,
distract our management and technical personnel, increase our costs of doing business, adversely affect the demand for our
products and services, and ultimately result in the imposition of liability, any of which could have a material adverse effect on
our business, financial condition and results of operations.
We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other
investment accounts, including potential regulatory risks.
We have, and may in the future, sponsor, manage and serve as general partner and/or manager of new funds or investment
accounts. Such sponsorship and management of, and investment in, such funds and accounts may involve risks not otherwise
present with a direct investment in such funds’ and accounts’ target investments, including, for example:
•
the possibility that investors in the funds/accounts
might become bankrupt or otherwise be unable to
meet their capital commitment obligations;
•
that operating and/or management agreements of a
fund/account may restrict our ability to transfer or
liquidate our interest when we desire or on
advantageous terms;
•
that our relationships with the investors will be
generally contractual in nature and may be
terminated or dissolved under the terms of the
agreements, or we may be removed as general
partner and/or manager (with or without cause), and
in such event, we may not continue to manage or
invest in the applicable fund/account;
•
that disputes between us and the investors may
result in litigation or arbitration that would increase
our expenses and prevent our officers and directors
from focusing their time and effort on our business
and result in subjecting the investments owned by
the applicable fund/account to additional risk; and
•
that we may incur liability for obligations of a fund/
account by reason of being its general partner or
manager.
We have a subsidiary that is registered with the SEC as an investment adviser under the Investment Advisers Act. As a result,
we are subject to the anti-fraud provisions of the Investment Advisers Act and to fiduciary duties derived from these provisions
that apply to our relationships with that subsidiary’s clients. These provisions and duties impose restrictions and obligations on
us with respect to our dealings with our subsidiary’s clients, including, for example, restrictions on agency, cross and principal
transactions. Our registered investment adviser subsidiary is subject to periodic SEC examinations and other requirements
under the Investment Advisers Act and related regulations primarily intended to benefit advisory clients. These additional
requirements relate to, among other things, maintaining an effective and comprehensive compliance program, recordkeeping
and reporting requirements and disclosure requirements. The Investment Advisers Act generally grants the SEC broad
administrative powers, including the power to limit or restrict an investment adviser from conducting advisory activities in the
event it fails to comply with federal securities laws. Additional sanctions that may be imposed for failure to comply with
applicable requirements under the Investment Advisers Act include the prohibition of individuals from associating with an
investment adviser, the revocation of registrations and other censures and fines. We may in the future be required to register one
or more entities as a commodity pool operator or commodity trading adviser, subjecting those entities to the regulations and
oversight of the Commodity Futures Trading Commission and the National Futures Association. We may also become subject
to various international regulations on the asset management industry.
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Loss of our Investment Company Act exemption from registration would adversely affect us.
We intend to conduct our business so as not to become regulated as an investment company under the Investment Company
Act. We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company
Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires us to invest at least 55% of our assets in “mortgages and
other liens on and interest in real estate” (“Qualifying Real Estate Assets”) and at least 80% of our assets in Qualifying Real
Estate Assets plus our other real estate related assets. The assets that we acquire, therefore, are limited by this provision of the
Investment Company Act and the rules and regulations promulgated under the Investment Company Act.
We rely on an SEC interpretation that “whole pool certificates” that are issued or guaranteed by Fannie Mae, Freddie Mac or
Ginnie Mae (“Agency Whole Pool Certificates”) are Qualifying Real Estate Assets under Section 3(c)(5)(C). This interpretation
was promulgated by the SEC staff in a no-action letter in the 1980s, was reaffirmed by the SEC in 1992 and has been
commonly relied upon by mortgage REITs.
On August 31, 2011, the SEC issued a concept release titled “Companies Engaged in the Business of Acquiring Mortgages and
Mortgage-Related Instruments” (SEC Release No. IC-29778). In this concept release, the SEC announced it was reviewing
interpretive issues related to the Section 3(c)(5)(C) exemption. Among other things, the SEC requested comments on whether it
should revisit whether Agency Whole Pool Certificates may be treated as interests in real estate (and presumably Qualifying
Real Estate Assets) and whether companies, such as us, whose primary business consists of investing in Agency Whole Pool
Certificates are the type of entities that Congress intended to be encompassed by the exclusion provided by Section 3(c)(5)(C).
If the SEC changes its views regarding which securities are Qualifying Real Estate Assets or real estate related assets, adopts a
contrary interpretation with respect to Agency Whole Pool Certificates or otherwise believes we do not satisfy the exemption
under Section 3(c)(5)(C), we could be required to restructure our activities or sell certain of our assets. The net effect of these
factors will be to lower our net interest income, which could negatively affect the market price of shares of our capital stock and
our ability to distribute dividends. If we fail to qualify for exemption from registration as an investment company, our ability to
use leverage would be substantially reduced, and we would not be able to conduct our business as described. Our business will
be materially and adversely affected if we fail to qualify for this exemption.
Risks Related to Our Taxation as a REIT
Our failure to maintain our qualification as a REIT would have adverse tax consequences.
We believe that since 1997 we have qualified for taxation as a REIT for U.S. federal income tax purposes under Sections 856
through 860 of the Code. We plan to continue to meet the requirements for taxation as a REIT. The determination that we are a
REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example,
to maintain our qualification as a REIT, at least 75% of our gross income must come from real estate sources and 95% of our
gross income must come from real estate sources and certain other sources that are itemized in the REIT tax laws. Additionally,
our ability to satisfy the REIT asset tests depends upon our analysis of the characterization and fair market values of our assets,
some of which are not susceptible to precise determination, and for which we will not obtain independent appraisals. The
proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some
circumstances, which could affect the application of the REIT asset requirements. We are also required to distribute to
stockholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and by
excluding any net capital gain). Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore,
Congress and the Internal Revenue Service (“IRS”) might make changes to the tax laws and regulations, and the courts might
issue new rulings that make it more difficult or impossible for us to remain qualified as a REIT.
We also indirectly own interests in entities that have elected to be taxed as REITs under the U.S. federal income tax laws, or
“Subsidiary REITs.” Subsidiary REITs are subject to the various REIT qualification requirements that are applicable to us. If
any Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to regular U.S.
federal, state, and local corporate income tax, (ii) our interest in such Subsidiary REIT would cease to be a qualifying asset for
purposes of the REIT asset tests, and (iii) it is possible that we would fail certain of the REIT asset tests, in which event we also
would fail to maintain our qualification as a REIT unless we could avail ourselves of certain relief provisions. While we
believe that the Subsidiary REITs have qualified as REITs under the Code, we have joined each Subsidiary REIT in filing
“protective” TRS elections under Section 856(l) of the Code. We cannot assure you that such “protective” TRS elections would
be effective to avoid adverse consequences to us. Moreover, even if the “protective” TRS elections were to be effective, the
Subsidiary REITs would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy
the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more
TRSs. If we fail to maintain our qualification as a REIT, we would be subject to U.S. federal income tax at regular corporate
rates. Also, unless the IRS were to grant us relief under certain statutory provisions, we would remain disqualified as a REIT
for four years following the year we first fail to qualify. If we fail to maintain our qualification as a REIT, we would have to
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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pay significant income taxes and would therefore have less money available for investments or for distributions to our
stockholders. This would likely have a significant adverse effect on the value of our equity. In addition, the tax law would no
longer require us to make distributions to our stockholders.
A REIT that fails the quarterly asset tests for one or more quarters will not lose its REIT status as a result of such failure if
either (i) the failure is regarded as a de minimis failure under standards set out in the Code, or (ii) the failure is greater than a de
minimis failure but is attributable to reasonable cause and not willful neglect. In the case of a greater than de minimis failure,
however, the REIT must pay a tax and must remedy the failure within six months of the close of the quarter in which the failure
was identified. In addition, the Code provides relief for failures of other tests imposed as a condition of REIT qualification, as
long as the failures are attributable to reasonable cause and not willful neglect. A REIT would be required to pay a penalty of
$50,000, however, in the case of each failure.
Our distribution requirements limit our flexibility and could affect our ability to execute our business plan.
As a REIT, we must distribute at least 90% of our REIT taxable income (determined without regard to the deduction for
dividends paid and by excluding any net capital gain). The required distribution limits the amount we have available for other
business purposes, including amounts to fund our growth. Also, it is possible that because of the differences between the time
we actually receive revenue or pay expenses and the period we report those items for distribution purposes, we may have to
borrow funds on a short-term basis to meet the 90% distribution requirement.
To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be
subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a non-
deductible 4% excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum
amount specified under U.S. federal tax laws. We intend to make distributions to our stockholders to comply with the REIT
qualification requirements of the Code.
From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in
accordance with GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may
occur. For example, if we purchase Agency or non-Agency securities at a discount, we generally are required to accrete the
discount into taxable income prior to receiving the cash proceeds of the accreted discount at maturity, and in some cases,
potentially recognize the discount in taxable income once such amounts are reflected in our financial statements. If we do not
have other funds available in these situations we could be required to (i) borrow funds on unfavorable terms, (ii) sell
investments at disadvantageous prices, (iii) distribute our own stock, or (iv) distribute amounts that would otherwise be invested
in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT
distribution requirement and to avoid the corporate income tax and 4% excise tax in a particular year. Also, we or our
subsidiaries may hold debt investments that could require subsequent modifications. If an amendment to an outstanding debt is
a “significant modification” for U.S. federal income tax purposes, the modified debt may be deemed to have been reissued in a
debt-for-debt taxable exchange with the borrower. This deemed reissuance could result in a portion of the modified debt not
qualifying as a good REIT asset if the underlying security has declined in value, and would cause us to recognize income to the
extent the principal amount of the modified debt exceeds our adjusted tax basis in the unmodified debt. These scenarios could
increase our costs or reduce our stockholders’ equity. Thus, compliance with the REIT requirements may hinder our ability to
grow, which could adversely affect the value of our stock.
Conversely, from time to time, we may generate taxable income less than our income for financial reporting purposes due to
GAAP and tax accounting differences or, as mentioned above, the timing between the recognition of taxable income and the
actual receipt of cash. In such circumstances we may make distributions according to our business plan that are within our
wherewithal from an economic or cash management perspective, but that are labeled as return of capital for tax reporting
purposes, as they are in excess of taxable income in that period.
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Neither ordinary nor capital gain distributions with respect to our stock nor gain from the sale of our stock are anticipated to
constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In
particular:
•
part of the income and gain recognized by certain
qualified employee pension trusts with respect to
our stock may be treated as unrelated business
taxable income if shares of our stock are
predominantly held by qualified employee pension
trusts, and we are required to rely on a special look-
through rule for purposes of meeting one of the
REIT ownership tests, and we are not operated in a
manner to avoid treatment of such income or gain as
unrelated business taxable income;
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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•
part of the income and gain recognized by a tax-
exempt investor with respect to our stock would
constitute unrelated business taxable income if the
investor incurs debt in order to acquire the stock;
•
part or all of the income or gain recognized with
respect to our stock by social clubs, voluntary
employee
benefit
associations,
supplemental
unemployment benefit trusts and qualified group
legal services plans which are exempt from U.S.
federal income taxation under the Code may be
treated as unrelated business taxable income;
•
to the extent that we (or a part of us, or a
disregarded subsidiary of ours) are a “taxable
mortgage pool,” or if we hold residual interests in a
real estate mortgage investment conduit or a CLO;
•
a portion of the distributions paid to a tax-exempt
stockholder that is allocable to excess inclusion
income may be treated as unrelated business taxable
income.
We have flexibility to pay dividends in our own stock.
We have in the past and may in the future distribute taxable dividends that are payable in cash or shares of our stock at the
election of each stockholder. Taxable stockholders receiving such dividends will be required to include the full amount of such
dividends as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax
purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash
dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds
may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the
time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with
respect to such dividends, including in respect to all or a portion of such dividend that is payable in stock. In addition, if a
significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put
downward pressure on the trading price of our stock.
Our TRSs cannot constitute more than 20% of our total assets.
A TRS is a corporation, other than a REIT or a qualified REIT subsidiary, in which a REIT owns stock and with which the
REIT jointly elects TRS status. The term also includes a corporate subsidiary in which the TRS owns more than a 35% interest.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income
if it was earned directly by the parent REIT. Overall, at the close of any calendar quarter, no more than 20% of the value of a
REIT’s assets may consist of stock or securities of one or more TRSs.
The stock and securities of our TRSs are expected to represent less than 20% of the value of our total assets. Furthermore, we
intend to monitor the value of our investments in the stock and securities of our TRSs to ensure compliance with the above-
described limitation. We cannot assure you, however, that we will always be able to comply with the limitation so as to
maintain REIT status.
TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a
TRS can pay to its parent REIT may be limited by REIT gross income tests.
A TRS must pay income tax at regular corporate rates on any income that it earns. In certain circumstances, the ability of our
TRSs to deduct interest expenses for U.S. federal income tax may be limited. Such income, however, is not required to be
distributed. Our TRSs will pay corporate income tax on their taxable income, and their after-tax net income will be available
for distribution to us.
Moreover, the annual gross income tests that must be satisfied to maintain our REIT qualification may limit the amount of
dividends that we can receive from our TRSs. Generally, not more than 25% of our gross income can be derived from non-real
estate related sources, such as dividends from a TRS. If, for any taxable year, the dividends we receive from our TRSs, when
added to our other items of non-real estate related income, were to represent more than 25% of our total gross income for the
year, we could be denied REIT status, unless we were able to demonstrate, among other things, that our failure of the gross
income test was due to reasonable cause and not willful neglect.
The limitations imposed by the REIT gross income tests may impede our ability to distribute assets from our TRSs to us in the
form of dividends. Certain asset transfers may, therefore, have to be structured as purchase and sale transactions upon which
our TRSs recognize a taxable gain.
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If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a
penalty tax.
If interest accrues on an indebtedness owed by a TRS to its parent REIT at a rate in excess of a commercially reasonable rate,
then the REIT would be subject to tax at a rate of 100% on the excess of (i) interest payments made by a TRS to its parent REIT
over (ii) the amount of interest that would have been payable had interest accrued on the indebtedness at a commercially
reasonable rate. A tax at a rate of 100% is also imposed on any transaction between a TRS and its parent REIT to the extent the
transaction gives rise to deductions to the TRS that are in excess of the deductions that would have been allowable had the
transaction been entered into on arm’s-length terms. While we scrutinize all of our transactions with our TRSs in an effort to
ensure that we do not become subject to these taxes, there is no assurance that we will be successful. We may not be able to
avoid application of these taxes.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income
and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a
foreclosure, excise taxes, state or local income, property and transfer taxes, such as mortgage recording taxes, and other taxes.
In addition, in order to meet the REIT qualification requirements, prevent the recognition of certain types of non-cash income,
or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we
may hold some of our assets through our TRSs or other subsidiary corporations that will be subject to corporate level income
tax at regular rates.
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate
otherwise attractive investments.
To remain qualified as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other
things, the sources of our income, the nature and diversification of our assets, the amounts that we distribute to our stockholders
and the ownership of our stock. Our ability to acquire and hold our investments is subject to the applicable REIT qualification
tests. We must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash
items, U.S. Government securities and qualified real estate assets. The remainder of our investment in securities (other than
U.S. Government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10%
of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any
one issuer. In addition, in general, no more than 5% of the value of our assets (other than U.S. Government securities, qualified
real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of the
value of our total assets can be represented by securities of one or more TRSs.
Changes in the values or other features of our assets could cause inadvertent violations of the REIT requirements. If we fail to
comply with the REIT requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end
of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering
adverse tax consequences. Additionally, we may be required to make distributions to stockholders at disadvantageous times or
when we do not have funds readily available for distribution.
Accordingly we may be unable to pursue investments that would be otherwise advantageous to us or be required to liquidate
from our investment portfolio otherwise attractive investments if we feel it is necessary to satisfy the source-of-income, asset-
diversification or distribution requirements for qualifying as a REIT. These actions could have the effect of reducing our
income and amounts available for distribution to our stockholders.
Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.
To remain qualified as a REIT, we must comply with requirements regarding the composition of our assets and our sources of
income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with
these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant
gain if we sell assets that are treated as dealer property or inventory.
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The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to
remain qualified as a REIT.
We enter into certain financing arrangements that are structured as sale and repurchase agreements pursuant to which we
nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase these assets at a
later date in exchange for a purchase price. Economically, these agreements are financings that are secured by the assets sold
pursuant thereto, and we treat them as such for U.S. federal income tax purposes. We believe that we would be treated for REIT
asset and income test purposes as the owner of the assets that are the subject of any such sale and repurchase agreement
notwithstanding that such agreement may transfer record ownership of the assets to the counterparty during the term of the
agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the sale and
repurchase agreement, in which case we could fail to remain qualified as a REIT.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code could substantially limit our ability to hedge our liabilities. Any income from a properly
designated hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be
made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets generally does not constitute
“gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging
transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the
gross income tests. As a result of these rules, we may have to limit our use of advantageous hedging techniques or implement
those hedges through our TRSs. This could increase the cost of our hedging activities because our TRSs would be subject to tax
on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In
addition, losses in our TRSs generally will not provide any tax benefit, except for being carried forward potentially to offset
taxable income in the TRSs for future periods.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited
judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification.
Our continued qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution,
stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the REIT qualification
requirements depends in part on the actions of third parties over which we have no control or limited influence, if any,
including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax
purposes.
The tax on prohibited transactions limits our ability to engage in certain transactions.
The 100% tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of structuring
CMOs, which would be treated as prohibited transactions for U.S. federal income tax purposes.
The term “prohibited transaction” generally includes a sale or other disposition of property (including mortgage loans, but other
than foreclosure property, as discussed below) that is held primarily for sale to customers in the ordinary course of a trade or
business by us or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us. We could be
subject to this tax if we were to dispose of or structure CMOs in a manner that was treated as a prohibited transaction for U.S.
federal income tax purposes.
We intend to conduct our operations at the REIT level so that no asset that we own (or are treated as owning) will be treated as
or as having been, held for sale to customers, and that a sale of any such asset will not be treated as having been in the ordinary
course of our business. As a result, we may choose not to engage in certain transactions at the REIT level, and may limit the
structures we utilize for our CMO transactions, even though the sales or structures might otherwise be beneficial to us. In
addition, whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the
particular facts and circumstances. No assurance can be given that any property that we sell will not be treated as property held
for sale to customers, or that we can comply with certain safe-harbor provisions of the Code that would prevent such treatment.
The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation,
although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our
activities to avoid the prohibited transaction tax.
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Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our
stockholders.
We may enter into securitization transactions and other financing transactions that could result in us, or a portion of our assets,
being treated as a taxable mortgage pool for U.S. federal income tax purposes. If we enter into such a transaction in the future,
we could be taxable at the highest corporate income tax rate on a portion of the income arising from a taxable mortgage pool,
referred to as “excess inclusion income,” that is allocable to the percentage of our shares held in record name by disqualified
organizations (generally tax-exempt entities that are exempt from the tax on unrelated business taxable income, such as state
pension plans and charitable remainder trusts and government entities). In that case, we could reduce distributions to such
stockholders by the amount of tax paid by us that is attributable to such stockholders’ ownership.
If we were to realize excess inclusion income, IRS guidance indicates that the excess inclusion income would be allocated
among our stockholders in proportion to the dividends paid. Excess inclusion income cannot be offset by losses of a
stockholder. If the stockholder is a tax-exempt entity and not a disqualified organization, then this income would be fully
taxable as unrelated business taxable income under Section 512 of the Code. If the stockholder is a foreign person, it would be
subject to U.S. federal income tax at the maximum tax rate and withholding will be required on this income without reduction
or exemption pursuant to any otherwise applicable income tax treaty.
Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
We purchase and sell Agency mortgage-backed securities through TBAs and recognize income or gains from the disposition of
those TBAs, through dollar roll transactions or otherwise, and may continue to do so in the future. While there is no direct
authority with respect to the qualification of TBAs as real estate assets or U.S. Government securities for purposes of the 75%
asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property (including
interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross
income test, we treat our TBAs as qualifying assets for purposes of the REIT asset tests, and we treat income and gains from
our TBAs as qualifying income for purposes of the 75% gross income test, based on an opinion of counsel substantially to the
effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of real estate assets,
and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of our
TBAs should be treated as gain from the sale or disposition of an interest in mortgages on real property. Opinions of counsel are
not binding on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in
such opinions. In addition, it must be emphasized that the opinion of counsel is based on various assumptions relating to our
TBAs and is conditioned upon fact-based representations and covenants made by our management regarding our TBAs. No
assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income. If the IRS
were to successfully challenge the opinion of counsel, we could be subject to a penalty tax or we could fail to remain qualified
as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains
from the disposition of TBAs.
Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations.
Qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is subject to the reduced
maximum tax rate applicable to capital gains. Dividends payable by REITs, however, generally are not eligible for the reduced
qualified dividend rates. Non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including
“qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain
dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income
tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividend income
does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular
corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to
be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely
affect the value of the shares of REITs, including our stock. Tax rates could be changed in future legislation.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more
difficult or impossible for us to remain qualified as a REIT.
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative,
judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in us.
The U.S. federal income tax rules dealing with REITs are constantly under review by persons involved in the legislative
process, the IRS and the U.S. Treasury, which results in statutory changes as well as frequent revisions to regulations and
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interpretations. Future revisions in federal tax laws and interpretations thereof could affect or cause us to change our
investments and commitments and affect the tax considerations of an investment in us.
Counterparty Risks
The soundness of our counterparties and other financial institutions affects us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, borrower, or other relationships. We
have exposure to many different counterparties, and routinely execute transactions with counterparties in the financial services
industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, mortgage companies,
mortgage servicers, and other financial institutions. Many of these transactions expose us to credit or counterparty risk in the
event of default of our counterparty or, in certain instances, our counterparty’s customers. There is no assurance that any such
losses would not materially and adversely impact our revenues, financial condition and earnings.
We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential
whole loans if they breach representations and warranties, which could cause us to suffer losses.
When selling or securitizing mortgage loans, sellers typically make customary representations and warranties about such loans.
Residential mortgage loan purchase agreements may entitle the purchaser of the loans to seek indemnity or demand repurchase
or substitution of the loans in the event the seller of the loans breaches a representation or warranty given to the purchaser.
There can be no assurance that a mortgage loan purchase agreement will contain appropriate representations and warranties,
that we or the trust that purchases the mortgage loans would be able to enforce a contractual right to repurchase or substitution,
or that the seller of the loans will remain solvent or otherwise be able to honor its obligations under its mortgage loan purchase
agreements. The inability to obtain or enforce an indemnity or require repurchase of a significant number of loans could
adversely affect our results of operations, financial condition and business.
Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of
the bankruptcy or insolvency of us or our lenders.
In the event of our insolvency or bankruptcy, certain repurchase and derivative agreements may qualify for special treatment
under the U.S. Bankruptcy Code, the effect of which, among other things, would be to allow the lender to avoid the automatic
stay provisions of the U.S. Bankruptcy Code and to foreclose on and/or liquidate the collateral pledged under such agreements
without delay. In the event of the insolvency or bankruptcy of a lender during the term of a repurchase or derivative agreement,
the lender may be permitted, under applicable insolvency laws, to repudiate the contract, and our claim against the lender for
damages (after any permitted collateral liquidation and setoff) may be treated as an unsecured claim. Net claims in our favor
after application of setoff would be subject to significant delay and costs to us and, if and when received, may be substantially
less than the damages we actually incur.
Investment and Market Related Risks
We may experience declines in the market value of our assets.
We have in the past and may in the future experience declines in the market value of our assets due to interest rate changes,
deterioration of the credit of the borrower or counterparty, or other reasons described in other risk factors. These declines may
result in fair value adjustments, impairments, decreases in reported asset and earnings, margin calls, liquidity risks, and other
adverse impacts.
Investments in MSR expose us to additional risks.
We invest in MSR and financial instruments whose cash flows are considered to be largely dependent on underlying MSR that
either directly or indirectly act as collateral for the investment. We expect to increase our exposure to MSR-related investments
in 2025. Generally, we have the right to receive certain cash flows from the MSR that are generated from the servicing fees and/
or excess servicing spread associated with the MSR. Our investments in MSR-related assets have in the past and may in the
future expose us to risks associated with MSR, including the following:
•
Investments in MSR are highly illiquid and subject to numerous restrictions on transfer and, as a result, there is risk that
we would be unable to locate a willing buyer or get required approval to sell MSR in the future should we desire to do
so.
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•
Our rights to the excess servicing spread are subordinate to the interests of Fannie Mae, Freddie Mac and Ginnie Mae,
and are subject to extinguishment. Fannie Mae and Freddie Mac each require approval of the sale of excess servicing
spreads pertaining to their respective MSR. We have entered into acknowledgment agreements or subordination of
interest agreements with them, which acknowledge our subordinated rights.
•
Changes in minimum servicing compensation for agency loans could occur at any time and could negatively impact the
value of the income derived from MSR.
•
The value of MSR is highly sensitive to changes in prepayment rates. Decreasing market interest rates are generally
associated with increases in prepayment rates as borrowers are able to refinance their loans at lower costs. Prepayments
result in the partial or complete loss of the cash flows from the related MSR. Accordingly, an increase in prepayments
can result in a reduction in the value and income we may earn of our MSR related assets and negatively affect our
profitability.
•
While we have executed recapture agreements with our subservicers to attempt to retain the MSR investment resulting
from a refinance transaction, the effectiveness of these efforts is impacted by borrower, subservicer, and unaffiliated
lender behavior.
•
Servicers are responsible for advancing the payment of principal, interest, and escrow items on mortgage loans when
those payments are not timely made by the borrower (including during periods of forbearance) and the timing and
amount of recovery of those advances is unpredictable.
If we are not able to successfully manage these and other risks related to investing in MSR, it may adversely affect the value of
our MSR-related assets.
A prolonged economic slowdown or declining real estate values could impair the assets we may own.
Our non-Agency mortgage-backed securities, mortgage loans, and MSR are affected by economic slowdowns or recessions,
which could lead to financial losses in our assets and a decrease in revenues, net income and asset values.
Owners of Agency mortgage-backed securities are protected from the risk of default on the underlying mortgages by guarantees
from Fannie Mae, Freddie Mac or, in the case of the Ginnie Mae, the U.S. Government. A default on those underlying
mortgages exposes us to prepayment risk described below, but not a credit loss. However, we also acquire CRTs, non-Agency
mortgage-backed securities and residential loans, which are backed by residential real property but, in contrast to Agency
mortgage-backed securities, the principal and interest payments are not guaranteed by GSEs or the U.S. Government. Our CRT,
non-Agency mortgage-backed securities and residential loan investments are therefore particularly sensitive to recessions and
declining real estate values.
In the event of a default on one of the residential mortgage loans that we hold in our portfolio or a mortgage loan underlying
CRT or non-Agency mortgage-backed securities in our portfolio, we bear the risk of loss as a result of the potential deficiency
between the value of the collateral and the debt owed, as well as the costs and delays of foreclosure or other remedies, and the
costs of maintaining and ultimately selling a property after foreclosure. Delinquencies and defaults on mortgage loans for which
we own the servicing rights will adversely affect the amount of servicing fee income we receive and may result in increased
servicing costs and operational risks due to the increased complexity of servicing delinquent and defaulted mortgage loans.
An increase in interest rates adversely affects the market value of our interest earning assets and, therefore, also our book
value.
Increases in interest rates have in the past and may in the future negatively affect the market value of our interest earning assets
because in a period of rising interest rates, the value of certain interest earning assets may fall and reduce our book value. For
example, our fixed-rate interest earning assets are generally negatively affected by increases in interest rates because in a period
of rising rates, the coupon we earn on our fixed-rate interest earning assets would not change. Our book value would be reduced
by the amount of a decline in the market value of our interest earning assets.
Actions by the Federal Reserve may affect the price and returns of our assets.
The Federal Reserve (the “Fed”) owns approximately $2.3 trillion of Agency mortgage-backed securities as of December 31,
2024. Certain actions taken by the U.S. government, including the Fed, may impact our results. For example, rising short-term
interest rates if the Fed lifts its monetary policy rate to slow an elevated rate of inflation may have a negative impact on our
results. Meanwhile, any potential future reduction of the Fed’s balance sheet might lead to higher interest rate volatility and
wider mortgage-backed security spreads that could negatively impact Annaly’s portfolio.
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We invest in securities that are subject to mortgage credit risk.
We invest in securities in the credit risk transfer CRT sector. The CRT sector is comprised of the risk sharing transactions
issued by Fannie Mae (“CAS”) and Freddie Mac (“STACR”), and similarly structured transactions arranged by third party
market participants. The securities issued in the CRT sector are designed to synthetically transfer mortgage credit risk from
Fannie Mae and Freddie Mac to private investors. The holder of the securities in the CRT sector has the risk that the borrowers
may default on their obligations to make full and timely payments of principal and interest. Investments in securities in the
CRT sector have in the past and may in the future cause us to incur losses of income from, and/or losses in market value
relating to, these assets if there are defaults of principal and/or interest on the pool of mortgages referenced in the transaction.
The holder of the CRT may also bear the risk of the default of the issuer of the security.
Our investments in real estate and other securities are subject to changes in credit spreads as well as available market
liquidity, which affect our ability to realize gains on the sale of such investments.
A significant component of the fair value of CRT and non-Agency securities and other credit risk-oriented investments is
attributable to the credit spread, or the difference between the value of the credit instrument and the value of a financial
instrument with similar interest rate exposure, but with no credit risk, such as a U.S. Treasury note. Credit spreads can be highly
volatile and have in the past and may in the future fluctuate due to changes in economic conditions, liquidity, investor demand
and other factors. Credit spreads typically widen in times of increased market uncertainty or when economic conditions have or
are expected to deteriorate. Credit spreads may also widen due to actual or anticipated rating downgrades on the securities or
similar securities. Hedging fair value changes associated with credit spreads may be inefficient and our hedging strategies are
not primarily designed to mitigate credit spread risk. Widening credit spreads could cause net unrealized gains to decrease or
result in net losses.
Geographic concentration exposes investors to greater risk of default and loss.
Repayments by borrowers and the market value of the related assets could be affected by economic conditions generally or
specific to geographic areas or regions of the United States, and concentrations of mortgaged residential properties in particular
geographic areas may increase the risk that adverse economic or other developments or natural or man-made disasters affecting
a particular region of the country could increase the frequency and severity of losses on mortgage loans or other real estate debt
secured by those properties. From time to time, regions of the United States experience significant real estate downturns when
others do not. Regional economic declines or conditions in regional real estate markets could adversely affect the income from,
and market value of, the mortgaged properties. In addition, local or regional economies may be adversely affected to a greater
degree than other areas of the country by developments affecting industries concentrated in such area. A decline in the general
economic condition in the region in which mortgaged properties securing the related mortgage loans are located would result in
a decrease in consumer demand in the region, and the income from and market value of the mortgaged properties may be
adversely affected.
Other regional factors – e.g., rising sea levels, earthquakes, floods, forest fires, hurricanes or changes in governmental rules or
fiscal policies – have in the past and may in the future adversely affect the mortgaged properties. Assets in certain regional
areas are more susceptible to certain hazards (such as earthquakes, widespread fires, floods or hurricanes) than properties in
other parts of the country and collateral properties located in coastal states may be more susceptible to hurricanes than
properties in other parts of the country. Furthermore, increasing financial losses related to climate change have caused, and
may continue to cause, insurers to reassess their presence in certain impacted areas. As a result, areas affected by such events
often experience disruptions in travel, transportation and tourism, loss of jobs and an overall decrease in consumer activity, and
often a decline in real estate-related investments. These types of occurrences may increase over time or become more severe
due to changes in weather patterns and other climate changes. There can be no assurance that the economies in such impacted
areas will recover sufficiently to support income producing real estate at pre-event levels or that the costs of the related clean-up
will not have a material adverse effect on the local or national economy.
Inadequate property insurance coverage impacts on our operating results.
Residential real estate assets may suffer casualty losses due to risks (including acts of terrorism) that are not covered by
insurance or for which insurance coverage requirements have been contractually limited by the related loan documents.
Moreover, if reconstruction or major repairs are required following a casualty, changes in laws that have occurred since the time
of original construction may materially impair the borrower’s ability to effect such reconstruction or major repairs or may
materially increase the cost thereof.
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There is no assurance that borrowers have maintained or will maintain the insurance required under the applicable loan
documents or that such insurance will be adequate. In addition, the effects of climate change have made, and may continue to
make, certain types of insurance, such as flood insurance, increasingly difficult and/or expensive to obtain in certain areas. In
addition, since the residential mortgage loans generally do not require maintenance of terrorism insurance, we cannot assure
you that any property will be covered by terrorism insurance. Therefore, damage to a collateral property that is not adequately
insured or damage to a collateral property caused by acts of terror may not be covered by insurance and may result in
substantial losses to us.
Our assets may become non-performing or sub-performing assets in the future.
Our assets may in the near or the long term become non-performing or sub-performing assets, which are subject to increased
risks relative to performing assets. Residential mortgage loans have in the past and may in the future become non-performing or
sub-performing for a variety of reasons that result in the borrower being unable to meet its debt service and/or repayment
obligations, such as the underlying property being too highly leveraged or the financial distress of the borrower. Such non-
performing or sub-performing assets may require a substantial amount of workout negotiations and/or restructuring, which may
involve substantial cost and divert the attention of our management from other activities and may entail, among other things, a
substantial reduction in interest rate, the capitalization of interest payments and/or a substantial write-down of the principal of
the loan. Even if a restructuring were successfully accomplished, the borrower may not be able or willing to maintain the
restructured payments or refinance the restructured loan upon maturity.
From time to time, we may find it necessary or desirable to foreclose the liens of loans we acquire or originate, and the
foreclosure process may be lengthy and expensive. Borrowers may resist foreclosure actions by asserting numerous claims,
counterclaims and defenses to payment against us (such as lender liability claims and defenses) even when such assertions may
have no basis in fact or law, in an effort to prolong the foreclosure action and force the lender into a modification of the loan or
a favorable buy-out of the borrower’s position. In some states, foreclosure actions can take several years or more to litigate. At
any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of
staying the foreclosure actions and further delaying the resolution of our claims. Foreclosure may create a negative public
perception of the related property, resulting in a diminution of its value. Depending on the results of the foreclosure process, we
may assume direct ownership of the underlying real estate. Even if we are successful in foreclosing on a loan, and irrespective
of whether we assume ownership of the property, the liquidation proceeds upon sale of the underlying real estate are not always
sufficient to recover our cost basis in the loan, resulting in a loss to us. Furthermore, any costs or delays involved in the
foreclosure of a loan or a liquidation of the underlying property will further reduce the proceeds and thus increase our loss. Any
such reductions could materially and adversely affect the value of the residential mortgage loans in which we invest.
Whether or not we have participated in the negotiation of the terms of a loan, there can be no assurance as to the adequacy of
the protection of the terms of the loan, including the validity or enforceability of the loan and the maintenance of the anticipated
priority and perfection of the applicable security interests. Furthermore, claims have in the past and may in the future be
asserted that might interfere with enforcement of our rights.
Whole loan mortgages are also subject to “special hazard” risk (property damage caused by hazards, such as earthquakes or
environmental hazards, not covered by standard property insurance policies), and to bankruptcy risk (reduction in a borrower’s
mortgage debt by a bankruptcy court). In addition, claims have in the past and may in the future be assessed against us on
account of our position as mortgage holder or property owner, as applicable, including responsibility for tax payments,
environmental hazards and other liabilities, which could have a material adverse effect on our results of operations, financial
condition and our ability to make distributions to our stockholders.
We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and
warranties.
When we sell or securitize loans, we will be required to make customary representations and warranties about such loans to the
loan purchaser. Our mortgage loan sale agreements will require us to repurchase or substitute loans in the event we breach a
representation or warranty given to the loan purchaser. In addition, we have in the past and may in the future be required to
repurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan. Likewise, we are not
always required to repurchase or substitute loans if we breach a representation or warranty in connection with our
securitizations. The remedies available to a purchaser of mortgage loans are generally broader than those available to us against
the originating broker or correspondent. Further, if a purchaser enforces its remedies against us, we have in the past and may in
the future not be able to enforce the remedies we have against the sellers. The repurchased loans typically can only be financed
at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the unpaid principal
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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balance. Significant repurchase activity could adversely affect our cash flow, results of operations, financial condition and
business prospects.
Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all weaknesses in
such assets.
Before acquiring a residential real estate debt asset, we will assess the strengths and weaknesses of the borrower, originator or
issuer of the asset as well as other factors and characteristics that are material to the performance of the asset. In making the
assessment and otherwise conducting customary due diligence, we will rely on resources available to us, including our third
party service providers and servicers. This process is particularly important with respect to newly formed originators or issuers
because there may be little or no information publicly available about these entities and assets. There can be no assurance that
our due diligence process will uncover all relevant facts or that any asset acquisition will be successful.
When we foreclose on an asset, we may come to own the property securing the loan.
When we foreclose on a residential real estate asset, we have in the past and may in the future take title to the property securing
that asset, and if we do not or cannot sell the property, we would then come to own and operate it as “real estate owned.”
Owning and operating real property involves risks that are different (and in many ways more significant) than the risks faced in
owning a debt instrument secured by that property. In addition, we have in the past and may in the future end up owning a
property that we would not otherwise have decided to acquire directly at the price of our original investment or at all. If we
foreclose on and come to own property, our financial performance and returns to investors could suffer.
Proposals to acquire mortgage loans by eminent domain may adversely affect the value of our assets.
Local governments have taken steps to consider how the power of eminent domain could be used to acquire residential
mortgage loans. There can be no certainty whether any mortgage loans sought to be purchased will be mortgage loans held in
securitization trusts and what purchase price would be paid for any such mortgage loans. Any such actions could have a
material adverse effect on the market value of our mortgage-backed securities, mortgage loans and MSR. There is also no
certainty as to whether any such action without the consent of investors would face legal challenge, and, if so, the outcome of
any such challenge.
Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior
securities.
Our investments may include subordinated tranches of non-Agency mortgage-backed securities, which are subordinated classes
of securities in a structure of securities collateralized by a pool of mortgage loans and, accordingly, are the first or among the
first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest
and principal. Additionally, estimated fair values of these subordinated interests tend to be more sensitive to changes in
economic conditions than more senior securities. As a result, such subordinated interests generally are not actively traded and
may not be liquid investments.
Our hedging strategies may be costly, and may not hedge our risks as intended.
Our policies permit us to enter into interest rate swaps, caps and floors, interest rate swaptions, interest rate futures, and other
derivative transactions to help us mitigate our interest rate and prepayment risks described in other risk factors subject to
maintaining our qualification as a REIT and our Investment Company Act exemption. We have used interest rate swaps and
options to enter into interest rate swaps (commonly referred to as interest rate swaptions) to provide a level of protection against
interest rate risks. We may also purchase or sell TBAs on Agency mortgage-backed securities, purchase or write put or call
options on TBAs, invest in other types of mortgage derivatives, such as interest-only securities, and hold short positions in U.S.
Treasury securities. No hedging strategy can protect us completely. Interest rate hedging may fail to protect or could adversely
affect us because, among other things: interest rate hedging can be expensive, particularly during periods of volatile interest
rates; available hedges may not correspond directly with the risk for which protection is sought; and the duration of the hedge
may not match the duration of the related asset or liability.
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We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of
climate change.
Assets in which we hold a direct or indirect interest have in the past and may in the future experience severe weather, including
hurricanes, severe winter storms, wildfires and flooding (including as a result of sea level rise), all of which may become more
severe as a result of climate change, which among other effects could impact house prices and housing-related costs and/or
disrupt borrowers’ ability to pay their mortgage and or loan. In addition, such events, particularly if they are not adequately
covered by insurance or have a broader negative impact on the local economy, may decrease the value of land and property
secured by mortgages. Moreover, long-term climate change could trigger extreme weather conditions that result in
macroeconomic and demographic shifts. Over time, these conditions could result in repricing of the assets (land, property,
securities) that we hold. There can be no assurance that climate change and severe weather will not have a material adverse
effect on our financial performance.
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Operational and Cybersecurity Risks
Reliance on inaccurate models or the data used by models exposes us to risk.
Given our strategies and the complexity of the valuation of our assets, we must rely heavily on analytical models (both
proprietary models developed by us and those supplied by third parties) and information and data supplied by our third party
vendors and servicers. Models and data are used to value assets or potential asset purchases and also in connection with hedging
our assets. Some of these models may use artificial intelligence. When models and data prove to be incorrect, misleading or
incomplete, any decisions made in reliance thereon expose us to potential risks. For example, by relying on models and data,
especially valuation models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at
prices that are too low or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data
may prove to be unsuccessful. Furthermore, despite our valuation validation processes our models may nevertheless prove to be
incorrect.
Some of the risks of relying on analytical models and third party data are particular to analyzing tranches from securitizations,
such as commercial or residential mortgage-backed securities. These risks include, but are not limited to, the following: (i)
collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled
based on simplifying assumptions that lead to errors; (ii) information about collateral may be incorrect, incomplete, or
misleading; (iii) collateral or bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be
incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different
definitions of what constitutes a delinquent loan); or (iv) collateral or bond information may be outdated, in which case the
models may contain incorrect assumptions as to what has occurred since the date information was last updated.
Some of the analytical models used by us, such as mortgage prepayment models or mortgage default models, are predictive in
nature. The use of predictive models has inherent risks. For example, such models have in the past and may in the future
incorrectly forecast future behavior, leading to potential losses on a cash flow and/or a mark-to-market basis. In addition, the
predictive models used by us may differ substantially from those models used by other market participants, with the result that
valuations based on these predictive models may be substantially higher or lower for certain assets than actual market prices.
Furthermore, since predictive models are usually constructed based on historical data supplied by third parties, the success of
relying on such models may depend heavily on the accuracy and reliability of the supplied historical data and the ability of
these historical models to accurately reflect future periods.
All valuation models rely on correct market data inputs. If incorrect market data is entered into even a well-founded valuation
model, the resulting valuations will be incorrect. However, even if market data is inputted correctly, “model prices” will often
differ substantially from market prices, especially for securities with complex characteristics, such as derivative instruments or
structured notes.
We are highly dependent on information systems and networks, many of which are operated by third parties.
Our business is highly dependent on communications and information systems and networks. Any failure or interruption of our
or our counterparties’ systems or networks or cyberattacks or other information security breaches of our networks or systems
may cause delays or other problems in our securities trading activities, including mortgage-backed securities trading activities.
In addition, we also face the risk of operational failure, termination or capacity constraints of any of the third parties with which
we do business or that facilitate our business activities, including clearing agents or other financial intermediaries we use to
facilitate our securities transactions, if their respective systems experience failure, interruption, cyberattacks, or other
information security breaches, including those caused by software bugs or errors, network failures, computer and
telecommunication failures, usage errors, power, communications or other service outages or failures, fires, earthquakes, severe
weather conditions or other catastrophic events. Certain third parties provide information needed for our financial statements
that we cannot obtain or verify from other sources. If one of those third parties experiences a system or network failure or
cybersecurity incident, we may not have access to that information or may not have confidence in its accuracy. Any of the
controls and procedures, business continuity systems and information security systems we or third parties upon whom we rely
have in place could prove to be inadequate.
Any failure to maintain performance, reliability and security of our technical infrastructure, systems or networks, or any such
failure by third parties upon whom we rely, could materially and adversely affect our business.
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Cyberattacks or other information security breaches of our Company's, service providers' or counterparties' systems or
networks affect our business, reputation and financial condition.
Cybersecurity risks for financial services businesses are increasing in their frequency, sophistication and intensity, and have
become increasingly difficult to detect, in part because of the proliferation of new technologies, including generative artificial
intelligence, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, state-sponsored
actors and other external parties. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial
espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, ransomware, denial-of-service,
social engineering fraud or other means to threaten data security, confidentiality, integrity and availability. Cybersecurity risks
also may derive from fraud or malice on the part of our employees or third parties, or may result from human error, software
bugs, server malfunctions, software or hardware failure or other technological failure. Such threats may be difficult to detect for
long periods of time and also may be further enhanced in frequency or effectiveness through threat actors’ use of artificial
intelligence. Further, cybersecurity risks may be heightened as a result of ongoing global conflicts.
We rely heavily on our financial, accounting and other data processing systems. A cyberattack or other information security
breach of such systems could lead to unauthorized access to and release, misuse, alteration, exfiltration, theft, loss, damage or
destruction of our confidential information or personal or confidential information of our clients, employees or third parties,
which could lead to regulatory fines, costs of remediating the breach, reputational harm, financial losses, litigation and
increased difficulty doing business with third parties that rely on us to meet their own data protection requirements.
While we generally perform cybersecurity diligence on our key service providers, we do not control our service providers and
our ability to monitor their cybersecurity is limited. Some of our service providers may store or have access to our data and may
not have effective controls, processes, or practices to protect our information from loss, unauthorized disclosure, unauthorized
use or misappropriation, cyberattacks or other information security breach. A vulnerability in our service providers’ software or
systems, a failure of our service providers’ safeguards, policies or procedures, or a cyberattack or other information security
breach affecting any of these third parties could harm our business.
Although we have not detected a material cybersecurity breach to date, other financial institutions have reported material
breaches of their systems, some of which have been significant. Even with all reasonable security efforts, not every breach can
be prevented or even detected. It is possible that we have experienced an undetected breach. There is no assurance that we have
not or will not experience a breach. In addition, certain third parties that facilitate our business activities have reported breaches
in the past and may experience breaches in the future, and there is no assurance that the third parties that have not reported
breaches or will not experience a breach in the future. We may be held responsible if certain third parties that facilitate our
business activities experience a breach. Additionally, we cannot be certain that our insurance coverage will be adequate for
cybersecurity liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms,
or at all, or that our insurer will not deny coverage as to any future claim.
We may face increased costs as we continue to evolve our cyber defenses in order to contend with changing risks, and possible
increased costs of complying with cybersecurity laws and regulations. These costs and losses associated with these risks are
difficult to predict and quantify, but could have a significant adverse effect on our operating results.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyberattacks or
other information security breaches of our networks or systems (or the networks or systems of third parties that facilitate our
business activities), but any cyberattack or other information security breach may negatively affect our operations. Further, we
could be exposed to litigation, regulatory enforcement, investigations or other legal action as a result of an incident, carrying the
potential for damages, fines, sanctions or other penalties, injunctive relief requiring costly compliance measures, and
reputational damage.
We may utilize artificial intelligence, which exposes us to liability and affects our business.
We use, or may in the future use, artificial intelligence, generative artificial intelligence, machine learning and similar tools and
technologies (collectively, “AI”) in connection with our business. The use of generative artificial intelligence, a relatively new
and emerging technology in the early stages of commercial use, exposes us to additional risks, such as damage to our
reputation, competitive position, and business, legal and regulatory risks and additional costs. For example, generative artificial
intelligence has been known to produce false or “hallucinatory” inferences or output, and certain generative artificial
intelligence uses machine learning and predictive analytics, which can create inaccurate, incomplete, or misleading content,
unintended biases and other discriminatory or unexpected results, errors or inadequacies, any of which may not be easily
detectable by us or any of our related service providers. Accordingly, while AI systems may help provide more tailored or
personalized user experiences, if the content, analyses, or recommendations that AI systems assist in producing in our products
and solutions are, or are perceived to be, deficient, inaccurate, biased, unethical or otherwise flawed, our reputation, competitive
position and business may be materially and adversely affected.
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Additionally, if any of our employees, contractors, consultants, vendors or service providers use any third-party AI-powered
software in connection with our business or the services they provide to us, it may lead to the inadvertent disclosure or
incorporation of our confidential information into publicly available training sets, which may impact our ability to realize the
benefit of, or adequately maintain, protect and enforce our intellectual property or confidential information, harming our
competitive position and business. Any output created by us using AI tools may not be subject to copyright protection, which
may adversely affect our intellectual property rights in, or ability to commercialize or use, any such content. In the United
States, a number of civil lawsuits have been initiated related to the foregoing and other concerns, any one of which may, among
other things, require us to limit the ways in which our AI systems are trained and may affect our ability to develop our AI-
powered products and solutions. To the extent that we do not have sufficient rights to use the data or other material or content
used in or produced by the AI tools used in our business, or if we experience cybersecurity incidents in connection with our use
of AI, it could adversely affect our reputation and expose us to legal liability or regulatory risk, including with respect to third-
party intellectual property, privacy, data protection and cybersecurity, publicity, contractual or other rights. Further, our
competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which
could impair our ability to compete effectively.
In addition, the regulatory framework for AI and similar technologies, and automated decision making, is changing rapidly. It is
possible that new laws and regulations will be adopted in the United States and in non-U.S. jurisdictions, or that existing laws
and regulations may be interpreted, in ways that would affect the operation of our products and solutions and the way in which
we use AI and similar technologies. For example, in Europe, on August 1, 2024, the European Union’s Artificial Intelligence
Act (the “AI Act”) was entered into force. The AI Act establishes, among other things, a risk-based governance framework for
regulating AI systems operating in the European Union. This framework would categorize AI systems, based on the risks
associated with such AI systems’ intended purposes, as creating unacceptable or high risks, with all other AI systems being
considered low risk. We may not be able to adequately anticipate or respond to these evolving laws and regulations, and we
may need to expend additional resources to adjust our offerings in certain jurisdictions if applicable legal frameworks are
inconsistent across jurisdictions. Moreover, because these technologies are themselves highly complex and rapidly developing,
it is not possible to predict all of the legal or regulatory risks that may arise relating to our use of such technologies. Further, the
cost to comply with such laws or regulations could be significant and would increase our operating expenses, which could
adversely affect our business, financial condition and results of operations.
As the utilization of AI becomes more prevalent, we anticipate that it will continue to present new or unanticipated ethical,
reputational, technical, operational, legal, competitive and regulatory issues, among others. We expect that our incorporation of
AI in our business will require additional resources, including the incurrence of additional costs, to develop and maintain our
products and solutions and features to minimize potentially harmful or unintended consequences, to comply with applicable and
emerging laws and regulations, to maintain or extend our competitive position, and to address any ethical, reputational,
technical, operational, legal, competitive or regulatory issues which may arise as a result of any of the foregoing. As a result,
the challenges presented with our use of AI could adversely affect our business, financial condition and results of operations.
We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services
related to our business.
We depend on a variety of services provided by third party service providers related to our investments in MSR as well as for
general operating purposes. For example, we rely on the mortgage servicers who service the mortgage loans underlying our
MSR to, among other things, collect principal and interest payments on such mortgage loans and perform loss mitigation
services in accordance with applicable laws and regulations. Mortgage servicers and other service providers, such as trustees,
bond insurance providers, due diligence vendors and document custodians, have in the past and may in the future fail to
perform or otherwise not perform in a manner that promotes our interests.
For example, any legislation or regulation intended to reduce or prevent foreclosures through, among other things, loan
modifications may reduce the value of mortgage loans, including those underlying our MSR. Mortgage servicers have in the
past and may in the future be required or otherwise incentivized by the Federal or state governments to pursue actions designed
to assist mortgagors, such as loan modifications, forbearance plans and other actions intended to prevent foreclosure even if
such loan modifications and other actions are not in the best interests of the beneficial owners of the mortgage loans. Similarly,
legislation delaying the initiation or completion of foreclosure proceedings on specified types of residential mortgage loans or
otherwise limiting the ability of mortgage servicers to take actions that may be essential to preserve the value of the mortgage
loans may also reduce the value of mortgage loans underlying our MSR. Any such limitations are likely to cause delayed or
reduced collections from mortgagors and generally increase servicing costs. As a consequence of the foregoing matters, our
business, financial condition and results of operations could be adversely affected.
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Our investments in residential whole loans subject us to servicing-related risks.
In connection with the acquisition and securitization of residential whole loans, we rely on unaffiliated servicing companies to
service and manage the mortgages underlying our non-Agency mortgage-backed securities and our residential whole loans. If a
servicer is not vigilant in seeing that borrowers make their required monthly payments, borrowers may be less likely to make
these payments, resulting in a higher frequency of default. If a servicer takes longer to liquidate non-performing mortgages, our
losses related to those loans may be higher than originally anticipated.
Any failure by servicers to service these mortgages and related real estate owned (“REO”) properties impacts the value of these
investments and our financial performance. In addition, while we have contracted, and will continue to contract, with
unaffiliated servicing companies to carry out the actual servicing of the loans we purchase together with the related MSR
(including all direct interface with the borrowers), we are nevertheless ultimately responsible, vis-à-vis the borrowers and state
and federal regulators, for ensuring that the loans are serviced in accordance with the terms of the related notes and mortgages
and applicable law and regulation. In light of the current regulatory environment, such exposure could be significant even
though we might have contractual claims against our servicers for any failure to service the loans to the required standard.
A default by the mortgage servicer in its capacity as servicer and/or failure of the mortgage servicer to perform its obligations
related to any MSR have in the past and may in the future result in a loss of value of servicing fees and/or excess servicing
spread. Mortgage servicers are subject to extensive federal, state and local laws, regulations and administrative decisions and
failure to comply with such regulations can expose the servicer to fines, damages and losses. In the capacity of servicer,
mortgage servicers operate in a highly litigious industry that subject it to potential lawsuits related to billing and collections
practices, modification protocols or foreclosure practices.
When a residential whole loan we own is foreclosed upon, title to the underlying property would be taken by one of our
subsidiaries. The foreclosure process, especially in judicial foreclosure states such as New York, Florida and New Jersey can be
lengthy and expensive, and the delays and costs involved in completing a foreclosure, and then liquidating the property through
sale, may materially increase any related loss. Finally, at such time as title is taken to a foreclosed property, it may require more
extensive rehabilitation than we estimated at acquisition or a previously unknown environmental liability may be discovered
that would require expensive and time-consuming remediation.
Additionally, given the magnitude of the 2008-2009 housing crisis, and in response to the well-publicized failures of many
servicers to follow proper foreclosure procedures, mortgage servicers are being held to much higher foreclosure-related
documentation standards than they previously were. However, because many mortgages have been transferred and assigned
multiple times (and by means of varying assignment procedures) throughout the origination, warehouse, and securitization
processes, mortgage servicers have generally had much more difficulty furnishing the requisite documentation to initiate or
complete foreclosures. In addition, unexpected macro-level events such as the COVID-19 pandemic or natural disasters have
led, and could continue to lead, to delays in the foreclosure process, both by operation of state law (e.g., foreclosure
moratoriums in certain states) and by delays in the judicial system. These circumstances have led to stalled or suspended
foreclosure proceedings, and ultimately additional foreclosure-related costs. Foreclosure-related delays also tend to increase
ultimate loan loss severities as a result of property deterioration, amplified legal and other costs, and other factors. Many factors
delaying foreclosure, such as borrower lawsuits and judicial backlog and scrutiny, are outside of a servicer's control and have
delayed, and will likely continue to delay, foreclosure processing in both judicial states (where foreclosures require court
involvement) and non-judicial states. The concerns about deficiencies in foreclosure practices of servicers and related delays in
the foreclosure process may impact our loss assumptions and has affected and may continue to affect the values of, and our
returns on, our investments in residential whole loans.
The performance of loans underlying our MSR related assets is affected by the performance of the related mortgage
servicer.
The performance of the loans underlying our MSR related assets is subject to risks associated with inadequate or untimely
servicing. If our mortgage servicers commit a material breach of their obligations as a servicer, we may be subject to damages if
the breach is not cured within a specified period of time following notice. In addition, poor performance by a mortgage servicer
have in the past and may in the future result in greater than expected delinquencies and foreclosures and losses on the mortgage
loans underlying our MSR related assets. A substantial increase in our delinquency or foreclosure rate or the inability to process
claims could adversely affect our ability to access the capital and secondary markets for our financing needs.
Similar to the way in which we service residential whole loans, we have also contracted, and will continue to contract, with
unaffiliated servicing companies to carry out the actual servicing activities (including all direct interface with the borrowers).
However, we are nevertheless ultimately responsible, vis-à-vis the borrowers and state and federal regulators, for ensuring that
these activities are performed in accordance with the terms of the related notes and mortgages and applicable laws and
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regulations. In light of the current regulatory environment, such exposure could be significant even though we might have
contractual claims against our servicers for any failure to service the loans to the required standard.
A default by the mortgage servicer in its capacity as servicer and/or failure of the mortgage servicer to perform its obligations
related to any MSR could result in a loss of value of servicing fees and/or excess servicing spread. Mortgage servicers are
subject to extensive federal, state and local laws, regulations and administrative decisions and failure to comply with such
regulations can expose the servicer to fines, damages and losses. In the capacity of servicer, mortgage servicers operate in a
highly litigious industry that subject them to potential lawsuits related to billing and collections practices, modification
protocols or foreclosure practices.
We are subject to prepayment rate risk.
The mortgage-backed securities we acquire are backed by pools of mortgage loans. We receive payments, generally, from the
payments that are made on the underlying mortgage loans. We often purchase mortgage-backed securities that have a higher
coupon rate than the prevailing market interest rates. In exchange for a higher coupon rate, we typically pay a premium over par
value to acquire these mortgage-backed securities. In accordance with U.S. GAAP, we amortize the premiums on our
mortgage-backed securities over the expected life of the related mortgage-backed securities. If the mortgage loans securing
these mortgage-backed securities prepay at a more rapid rate than anticipated, we will have to amortize our premiums on an
accelerated basis that may adversely affect our profitability.
Defaults on mortgage loans underlying Agency mortgage-backed securities typically have the same effect as prepayments
because of the underlying Agency guarantee.
Prepayment rates generally increase when interest rates fall and decrease when interest rates rise, but changes in prepayment
rates are difficult to predict. Prepayment rates also have in the past and may in the future be affected by conditions in the
housing and financial markets, general economic conditions and the relative interest rates on fixed-rate and adjustable-rate
mortgage loans. We seek to minimize prepayment risk to the extent practical, and in selecting investments we must balance
prepayment risk against other risks and the potential returns of each investment. No strategy can completely insulate us from
prepayment risk. We have in the past and may in the future choose to bear increased prepayment risk if we believe that the
potential returns justify the risk.
Conversely, a decline in prepayment rates on our investments will reduce the amount of principal we receive and therefore
reduce the amount of cash we otherwise could have reinvested in higher yielding assets at that time, which could negatively
impact our future operating results.
We are subject to reinvestment risk.
We are subject to reinvestment risk as a result of changes in interest rates. Declines in interest rates are generally accompanied
by increased prepayments of mortgage loans, which in turn results in a prepayment of the related mortgage-backed securities.
An increase in prepayments has in the past and may in the future result in the reinvestment of the proceeds we receive from
such prepayments into lower yielding assets. Conversely, increases in interest rates are generally accompanied by decreased
prepayments of mortgage loans, which have in the past and may in the future reduce our capital available to reinvest into
higher-yielding assets.
Competition may affect ability and pricing of our target assets.
We operate in a highly competitive market for investment opportunities. Our profitability depends, in large part, on our ability
to acquire our target assets at attractive prices. In acquiring our target assets, we compete with a variety of institutional
investors, including other REITs, specialty finance companies, public and private funds, government entities, commercial and
investment banks, commercial finance and insurance companies and other financial institutions. Many of our competitors are
substantially larger and have considerably greater financial, technical, technological, marketing and other resources than we do.
Other REITs with investment objectives that overlap with ours may elect to raise significant amounts of capital, which have in
the past and may in the future create additional competition for investment opportunities. Some competitors may have a lower
cost of funds and access to funding sources that may not be available to us. Many of our competitors are not subject to the
operating constraints associated with REIT compliance or maintenance of an exemption from the Investment Company Act. In
addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to
consider a wider variety of investments and establish more relationships than us. Furthermore, competition for investments in
our target assets may lead to the price of such assets increasing, which may further limit our ability to generate desired returns.
We cannot provide assurance that the competitive pressures we face will not have a material adverse effect on our business,
financial condition and results of operations. Also, as a result of this competition, desirable investments in our target assets
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may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time,
as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment
objectives.
We may enter into new lines of business, acquire other companies or engage in other strategic initiatives, each of which may
result in additional risks and uncertainties in our businesses.
We have in the past and may in the future pursue growth through acquisitions of other companies or other strategic initiatives.
To the extent we pursue strategic investments or acquisitions, undertake other strategic initiatives or consider new lines of
business, we will face numerous risks and uncertainties, including risks associated with:
•
the availability of suitable opportunities;
•
the level of competition from other companies that
may have greater financial resources;
•
our ability to assess the value, strengths,
weaknesses, liabilities and potential profitability of
potential acquisition opportunities accurately and
negotiate acceptable terms for those opportunities;
•
the required investment of capital and other
resources;
•
the lack of availability of financing and, if available,
the terms of any financings;
•
the possibility that we have insufficient expertise to
engage in such activities profitably or without
incurring inappropriate amounts of risk;
•
the diversion of management’s attention from our
core businesses;
•
the potential loss of key personnel of an acquired
business;
•
assumption of liabilities in any acquired business;
•
the disruption of our ongoing businesses;
•
the increasing demands on or issues related to the
combining or integrating operational and
management systems and controls;
•
compliance with additional regulatory requirements;
•
costs associated with integrating and overseeing the
operations of the new businesses;
•
failure to realize the full benefits of an acquisition,
including expected synergies, cost savings, or
growth opportunities, within the anticipated
timeframe or at all; and
•
post-acquisition deterioration in an acquired
business that could result in lower or negative
earnings contribution and/or goodwill impairment
charges.
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which
we are currently exempt, and may lead to increased litigation and regulatory risk. The decision to increase or decrease
investments within a line of business may lead to additional risks and uncertainties. In addition, if a new or acquired business
generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will
be adversely affected. Our strategic initiatives have in the past and may in the future include joint ventures, in which case we
will be subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability for, losses or
reputational damage relating to systems, controls and personnel that are not under our control.
Some of our investments, including those related to non-prime loans, involve credit risk.
Our current investment strategy includes seeking growth in our residential credit business. The holder of a mortgage or
mortgage-backed securities assumes the risk that the related borrowers may default on their obligations to make full and timely
payments of principal and interest. Under our investment policy, we have the ability to acquire non-Agency mortgage-backed
securities, residential whole loans, MSR and other investment assets of lower credit quality. In general, non-Agency mortgage-
backed securities carry greater investment risk than Agency mortgage-backed securities because they are not guaranteed as to
principal or interest by the U.S. Government, any federal agency or any federally chartered corporation. Non-investment grade,
non-Agency securities tend to be less liquid, may have a higher risk of default and may be more difficult to value than
investment grade bonds. Higher-than-expected rates of default and/or higher-than-expected loss severities on the mortgages
underlying our non-Agency mortgage-backed securities, MSR or on our residential whole loan investments may adversely
affect the value of those assets. Accordingly, defaults in the payment of principal and/or interest on our non-Agency mortgage-
backed securities, residential whole loan investments, MSR and other investment assets of lower credit quality have in the past
and may in the future result in our incurring losses of income from, and/or losses in market value relating to, these assets.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
42
We have certain investments in non-Agency mortgage-backed securities backed by collateral pools containing mortgage loans
that were originated under underwriting standards that were less strict than those used in underwriting “prime mortgage loans.”
These lower standards permitted mortgage loans, often with LTV ratios in excess of 80%, to be made to borrowers having
impaired credit histories, lower credit scores, higher debt-to-income ratios and/or unverified income. Difficult economic
conditions, including increased interest rates and lower home prices, have in the past and may in the future result in non-prime
and subprime mortgage loans having increased rates of delinquency, foreclosure, bankruptcy and loss (including such as during
the credit crisis of 2007-2008 and the housing crisis that followed), and are likely to otherwise experience delinquency,
foreclosure, bankruptcy and loss rates that are higher, and that may be substantially higher, than those experienced by mortgage
loans underwritten in a more traditional manner. Thus, because of higher delinquency rates and losses associated with non-
prime and subprime mortgage loans, the performance of our non-Agency mortgage-backed securities that are backed by these
types of loans could be correspondingly adversely affected, which could materially adversely impact our results of operations,
financial condition and business.
Any inability to attract, motivate and retain qualified talent, including our key personnel, affects us.
Our success and our ability to manage anticipated future growth depend, in large part, upon the efforts of our highly skilled
employees, and particularly on our key personnel, including our executive officers. Our executive officers have extensive
experience and strong reputations in the sectors in which we operate and have been instrumental in setting our strategic
direction, operating our business, identifying, recruiting, and training our other key personnel, and arranging necessary
financing. The departure of any of our executive officers or other key personnel, or our inability to attract, motivate and retain
highly qualified employees at all levels of the firm in light of the intense competition for talent, could adversely affect our
business, operating results or financial condition; diminish our investment opportunities; or weaken our relationships with
lenders, business partners and industry personnel.
Other Risks
The market price and trading volume of our shares of common stock may be volatile and issuances of large amounts of
shares of our common stock could cause the market price of our common stock to decline.
If we issue a significant number of shares of common stock or securities convertible into common stock in a short period of
time, there could be a dilution of the existing common stock and a decrease in the market price of the common stock.
The market price of our shares of common stock has in the past and may in the future be highly volatile and could be subject to
wide fluctuations. In addition, the trading volume in our shares of common stock may fluctuate and cause significant price
variations to occur. We cannot assure you that the market price of our shares of common stock will not fluctuate or decline
significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or
trading volume of our shares of common stock include those set forth under “Special Note Regarding Forward-Looking
Statements” as well as:
•
actual or anticipated variations in our quarterly
operating results or business prospects;
•
changes in our earnings estimates or publication of
research reports about us or the real estate industry;
•
an inability to meet or exceed securities analysts’
estimates or expectations;
•
increases in market interest rates;
•
hedging or arbitrage trading activity in our shares of
common stock;
•
capital commitments;
•
changes in market valuations of similar companies;
•
adverse
market
reaction
to
any
increased
indebtedness we incur in the future;
•
additions or departures of management personnel;
•
actions by institutional stockholders or activist
investors;
•
speculation in the press or investment community;
•
changes in our distribution policy;
•
government action or regulation;
•
general market and economic conditions; and
•
future sales of our shares of common stock or
securities convertible into, or exchangeable or
exercisable for, our shares of common stock.
Holders of our shares of common stock will be subject to the risk of volatile market prices and wide fluctuations in the market
price of our shares of common stock. These factors have in the past and may in the future cause the market price of our shares
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
43
of common stock to decline, regardless of our financial condition, results of operations, business or prospects. It is impossible
to assure you that the market prices of our shares of common stock will not fall in the future.
Under our charter, we have 1,531,750,000 authorized shares of capital stock, par value of $0.01 per share. Sales of a substantial
number of shares of our common stock or other equity-related securities in the public market, or any hedging or arbitrage
trading activity that may develop involving our common stock, could depress the market price of our common stock and impair
our ability to raise capital through the sale of additional equity securities.
We may change our policies without stockholder approval.
Our Board has established very broad investment guidelines that may be amended from time to time. Our Board and
management determine all of our significant policies, including our investment, financing, capital and asset allocation and
distribution policies. They have in the past and may in the future amend or revise these policies at any time without a vote of
our stockholders, or otherwise initiate a change in asset allocation. Policy changes could adversely affect our financial
condition, results of operations, the market price of our common stock or our ability to pay dividends or distributions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
For a full discussion of our cybersecurity risk management process and policies, please refer to the subsection titled
“Operational Risk Management” within the “Risk Management” section of Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
ITEM 2. PROPERTIES
Our executive and administrative office is located at 1211 Avenue of the Americas New York, New York 10036, telephone
212-696-0100. This office is leased under a non-cancelable lease expiring May 31, 2042.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. As of
December 31, 2024, we were not party to any pending material legal proceedings and we are not aware of any contemplated
material proceedings by governmental authorities.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
44
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading publicly on October 8, 1997 and is traded on the New York Stock Exchange under the trading
symbol “NLY.” As of January 31, 2025, we had 578,357,904 shares of common stock issued and outstanding which were held
by approximately 464,395 beneficial holders. The equity compensation plan information called for by Item 201(d) of
Regulation S-K is set forth in Item 12 of Part III of this Form 10-K under the heading “Equity Compensation Plan Information.”
Dividends
We intend to pay quarterly dividends and to distribute to our stockholders all or substantially all of our taxable income in each
year (subject to certain adjustments) consistent with the distribution requirements applicable to REITs. This will enable us to
qualify for the tax benefits accorded to a REIT under the Code. We have not established a minimum dividend payment level
and our ability to pay dividends may be adversely affected by factors beyond our control. In addition, unrealized changes in the
estimated fair value of available-for-sale investments may have a direct effect on dividends. All distributions will be made at
the discretion of our Board and will depend on our earnings, our financial condition, maintenance of our REIT status and such
other factors as our Board may deem relevant from time to time. See also Item 1A. “Risk Factors.” No dividends can be paid
on our common stock unless we have paid full cumulative dividends on our preferred stock. From the date of issuance of our
preferred stock through December 31, 2024, we have paid full cumulative dividends on our preferred stock.
Share Performance Graph
The following graph and table set forth certain information comparing the yearly percentage change in cumulative total return
on our common stock to the cumulative total return of the Standard & Poor’s Composite 500 stock Index or S&P 500 Index,
and a select group of peers operating within the mortgage REIT industry, or Performance Peer Group. The comparison is for
the five-year period ended December 31, 2024and assumes the reinvestment of dividends. The graph and table assume that
$100 was invested in our common stock, the S&P 500 Index and the Performance Peer Group on the last trading day of the
initial year shown in the graph.
In previous filings, we included the Bloomberg Mortgage REIT Index, or BBG REIT Index, in the share performance graph and
table. As a result of the discontinuation of the BBG REIT Index in 2024, we have replaced the BBG REIT Index with the
Performance Peer Group. The Performance Peer Group represents a group of mortgage REIT peers used by the Management
Development and Compensation Committee of our Board of Directors to evaluate our performance and to inform certain
elements of our executive compensation program. We believe that companies included in the Performance Peer Group have
portfolios and investment strategies that most closely resemble our focus on residential mortgage assets. Companies comprising
the Performance Peer Group include AGNC Investment Corp., ARMOUR Residential REIT, Inc., Chimera Investment
Corporation, Dynex Capital, Inc., Ellington Financial Inc., Invesco Mortgage Capital, Inc., MFA Financial, Inc., New York
Mortgage Trust, Orchid Island Capital, Inc., Redwood Trust, Inc., Rithm Capital Corp., and Two Harbors Investment Corp. The
cumulative total return of the Performance Peer Group was weighted according to the respective issuer's stock market
capitalization at the beginning of the performance period.
For the five-year period ended December 31, 2023, an investment of $100 at the beginning of the period would have resulted in
a value of $93 in our common stock, $98 in the BBG REIT Index, and $85 in the Performance Peer Group.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
45
Five-Year Share Performance
Annaly Capital Management, Inc.
S&P 500 Index
Performance Peer Group
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
50
100
150
200
250
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
Annaly Capital Management, Inc.
100
102
105
83
87
94
S&P 500 Index
100
118
152
125
157
197
Performance Peer Group
100
68
79
57
67
71
The information in the share performance graph and table has been obtained from sources believed to be reliable, but neither the
accuracy nor completeness can be guaranteed. The historical information set forth above is not necessarily indicative of future
performance. Accordingly, we do not make or endorse any predictions as to future share performance.
The above performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the
SEC or subject to Regulation 14A or 14C under the Securities Exchange Act or to the liabilities of Section 18 of the Securities
Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the
Securities Exchange Act, except to the extent that we specifically incorporate it by reference into such a filing.
Share Repurchase
In January 2025, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of
common stock through December 31, 2029 (the “Current Common Stock Repurchase Program”). The Current Common Stock
Repurchase Program replaces our previous $1.5 billion share repurchase program, which expired on December 31, 2024 (the
“Prior Common Stock Repurchase Program”). No shares were repurchased with respect to the Prior Common Stock
Repurchase Program during the year ended December 31, 2024.
Purchases made pursuant to the Current Common Stock Repurchase Program will be made in either the open market or in
privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing,
manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and
market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate us to acquire
any particular amount of common stock and the program may be suspended or discontinued at our discretion without prior
notice.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
46
In January 2025, we announced that our Board authorized a repurchase plan for all of our existing outstanding Preferred Stock
(as defined below, the “Current Preferred Stock Repurchase Program”). Under the terms of the plan, we are authorized to
repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of our 6.95%
Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred
Stock”), (ii) 17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par
value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of our 6.75% Series I Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F
Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of the Current Preferred
Stock that may be repurchased by us pursuant to the Current Preferred Stock Repurchase Program, as of December 31, 2024,
was approximately $1.6 billion. The Current Preferred Stock Repurchase Program replaces our previous repurchase plan for all
of our existing outstanding Preferred Stock, which expired on December 31, 2024 (the “Prior Preferred Stock Repurchase
Program”). The Current Preferred Stock Repurchase Program became effective on January 1, 2025, and will expire on
December 31, 2029. No shares were repurchased with respect to the Prior Preferred Stock Repurchase Program during the year
ended December 31, 2024.
Purchases made pursuant to the Current Preferred Stock Repurchase Program will be made in either the open market or in
privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing,
manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and
market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate us to acquire
any particular amount of Preferred Stock and the program may be suspended or discontinued at our discretion without prior
notice.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
47
ITEM 6. [Reserved]
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 6. Selected Financial Data
48
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All references to “Annaly,” “we,” “us,” or “our” mean Annaly Capital Management, Inc. and all entities owned by us, except
where it is made clear that the term means only the parent company. Refer to the section titled “Glossary of Terms” located at
the end of this Item 7 for definitions of commonly used terms in this annual report on Form 10-K.
This section of our Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can
be found in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our
annual report on Form 10-K for the year ended December 31, 2023.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
49
INDEX TO ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page
Overview
51
Business Environment
51
Economic Environment
52
Results of Operations
53
Net Income (Loss) Summary
54
Non-GAAP Financial Measures
56
Earnings Available for Distribution, Earnings Available for Distribution Attributable to Common Stockholders, Earnings Available for
Distribution Per Average Common Share and Annualized EAD Return on Average Equity
56
Premium Amortization Expense
58
Economic Leverage and Economic Capital Ratios
58
Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)
59
Experienced and Projected Long-term CPR
60
Average Yield on Interest Earning Assets (excluding PAA), Net Interest Spread (excluding PAA), Net Interest Margin (excluding PAA), and
Average Economic Cost of Interest Bearing Liabilities
61
Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities
62
Other Income (Loss)
63
General and Administrative Expenses
63
Return on Average Equity
64
Unrealized Gains and Losses - Available-for-Sale Investments
64
Financial Condition
65
Residential Securities
65
Contractual Obligations
67
Commitments and Contractual Obligations with Unconsolidated Entities
68
Capital Management
68
Stockholders’ Equity
68
Capital Stock
68
Leverage and Capital
69
Risk Management
70
Risk Appetite
70
Governance
70
Description of Risks
72
Liquidity and Funding Risk Management
72
Funding
72
Excess Liquidity
74
Maturity Profile
75
Stress Testing
76
Liquidity Management Policies
76
Investment/Market Risk Management
76
Credit Risk Management
77
Counterparty Risk Management
78
Operational Risk Management
79
Compliance, Regulatory and Legal Risk Management
80
Critical Accounting Estimates
80
Valuation of Financial Instruments
80
Residential Securities
80
Residential Mortgage Loans
81
MSR
81
Interest Rate Swaps
81
Revenue Recognition
82
Consolidation of Variable Interest Entities
82
Use of Estimates
82
Glossary of Terms
83
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
50
Overview
We are a leading diversified capital manager with investment strategies across mortgage finance. Our principal business
objective is to generate net income for distribution to our stockholders and optimize our returns through prudent management of
our diversified investment strategies. We are an internally-managed Maryland corporation founded in 1997 that has elected to
be taxed as a REIT. Our common stock is listed on the New York Stock Exchange under the symbol “NLY.”
We use our capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread
between the yield on our assets and the cost of our borrowings and hedging activities.
Our three investment groups are primarily comprised of the following:
Investment Groups
Description
Annaly Agency Group
Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which
are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the
Agency market, including Agency commercial MBS.
Annaly Residential Credit Group
Invests primarily in non-Agency residential whole loans and securitized products within the residential
and commercial markets.
Annaly Mortgage Servicing Rights Group
Invests in mortgage servicing rights (“MSR”), which provide the right to service residential mortgage
loans in exchange for a portion of the interest payments made on the loans.
For a full discussion of our business, refer to the section titled “Business Overview” of Part I, Item 1. “Business” and see the
Note titled "Segments" in the Notes to the Consolidated Financial Statements included in Item 15. "Exhibits, Financial
Statement Schedules."
Business Environment
U.S. real economic growth remained at its above-trend pace in 2024, marking a second consecutive year of strong U.S.
economic growth despite continued elevated interest rates. The strength of the U.S. economy was primarily driven by
consumption, as individuals benefitted from robust wage growth and a moderation of inflation pressures. Government spending
also supported economic growth, while investment activity contributed somewhat less than in 2023. Separately, the U.S.
economy broadly appears to have benefitted from recent strong immigration flows, which helped balance labor market supply
and demand, and improved productivity gains.
Financial markets observed a constructive 2024, with equities recording strong returns given the healthy economic picture, best
seen in the 25.0% total return for the S&P 500 Index. Interest rates, however, remained volatile throughout the year, though
were generally more rangebound than in 2023. Ten-year Treasury yields traded in a range between 3.6% and 4.7%, generally
narrower than in 2023, when the range was 3.3% to 5.0%. Nonetheless, interest rates generally remained elevated relative to the
period between the 2008 financial crisis and the 2020 pandemic, which has led to increased speculation that the lower interest
rates in that period were more of an outlier than a new normal. For now, the U.S. economy remains strong, which in turn
suggests healthy economic growth can occur even at these higher interest rate levels.
The Federal Reserve (“the Fed”) lowered the Federal Funds Target Rate (“Fed Funds Rate”) in the second half of 2024. As
inflation rates fell from their peak in the summer of 2022 and hiring slowed over the summer months, the risk that a Fed Funds
Rate at a peak of 5.25-5.50% would unduly constrain economic growth and the labor market rose. Consequently, the Fed
lowered the Fed Funds Rate by 1% over the course of three meetings between September and December, even though inflation
remained above 2% annual rates. Given continued strength in both inflation and economic activity, Fed officials have signaled a
more gradual approach going forward, waiting for further inflation progress to lower the rate further. Regarding their balance
sheet policy, the Fed slowed the decline in their securities portfolio mid-year by reducing the cap on Treasury securities runoff
from $60 billion per month to $25 billion. Combined with the decline in their mortgage-backed securities portfolio, the Fed’s
security portfolio declined $668 billion in 2024 and continues to decline at a $60 billion per month pace.
Of note, given the lower Fed Funds Rate and relatively less movement in long-term Treasury rates, the yield curve steepened,
with the 2-year 10-year Treasury spread, the difference between yields of those maturities, turning positive for the first time in
over two years. In addition, long-term Treasuries appeared increasingly driven by investors’ increased demand for
compensation to hold longer maturity securities, with rising term premia driving much of the increase in long-term Treasury
yields seen in 2024. Additionally, the U.S. presidential election outcome amplified the rise in term premia, as expectations for a
permanent extension of the 2017 “Tax Cuts and Jobs Act” was estimated to further increase the U.S. budget deficit according to
estimates by the Congressional Budget Office.
Meanwhile, residential investment slowed as high mortgage rates curbed demand for housing and housing construction,
particularly in the second half of the year. In this economic environment, the housing market saw limited changes in aggregate
as inventories and activity remain subdued relative to the pre-pandemic averages, which supported home prices. National home
prices rose roughly 3.0% in 2024. Historically low affordability for prospective homeowners, as mortgage rates remained above
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
51
6.0% for nearly the entire year and existing homeowners’ inability to move homes without a meaningful increase in housing
costs (the so called “lock in effect”), have supported home prices at low levels of sales turnover. However, there has been
increased regional differentiation, with larger growth in supply in states and cities in the Southern and Western United States,
which in turn saw price changes below the national average. Areas of home price weakness generally correspond to areas with
easier zoning restrictions and greater ability to build new homes, though many of them also saw more notable price increases
following the pandemic driven by housing shortages and outsized population growth.
In this environment, Annaly generated an 11.9% economic return in 2024, underscoring the efficacy of our diversified housing
finance model and our disciplined portfolio and risk management. We proactively managed our leverage profile throughout the
year, reducing aggregate leverage modestly from 5.7x at the end of 2023 to 5.5x at the end of 2024. Similar to 2023, a portion
of the reduced leverage is driven by further diversification into the Residential Credit and mortgage servicing rights (“MSR”)
businesses, which now represent 2 percentage points more of our capital than at year end 2023. Both businesses are less levered
than Agency MBS. Finally, as a result of constructive financial markets, we were able to raise $1.6 billion in accretive equity
capital over the course of the year. Given the increased capital base, Annaly’s aggregate portfolio grew to $80.9 billion as of
December 31, 2024, up roughly $6.5 billion relative to the same date a year earlier. Of note, we grew assets and capital in each
of our three businesses.
The Agency MBS portfolio grew its assets to $70.6 billion as we added a modest amount of assets across the major asset
classes in the portfolio. The increases were focused on our continued purchases of prepayment protected Agency MBS
specified pools in production coupons, which added attractive cash flows that also offered prepayment protection. In addition,
Annaly began to hold a larger balance of “to be announced” (“TBA”) securities after holding a modestly negative balance at the
end of 2023, though at $3.1 billion, our TBA position remains small relative to recent years. This smaller share is largely a
function of the continued unattractive financing conditions in the TBA market relative to repurchase agreement (“repo”)
funding of specified pools. In addition, larger loan sizes have left TBAs with elevated prepayment risks. Finally, Annaly
modestly increased our portfolio of Agency commercial mortgage-backed securities to $3.3 billion market value as the asset
class continues to offer an attractive stable cash flow in volatile interest rate markets.
Our Residential Credit business portfolio continued to grow strongly driven by Annaly’s residential whole loan acquisition
strategy, through which the business acquired $13 billion in loans, predominantly through our correspondent channel. The
strategy continued to allow us to control all aspects of the loan making process, including asset selection, counterparties and
loss mitigation. Extracting favorable economics and long-term non-recourse financing, our Residential Credit business issued a
record 21 securitizations under Annaly’s Onslow Bay (“OBX”) shelf in 2024, worth a total of $11.0 billion. Given the stable
housing market, a strong network of counterparties and robust demand for residential credit assets, we expect to continue to
grow the strategy in 2025.
Finally, Annaly also continued to grow its MSR strategy, further increasing assets through purchases predominantly of low-
coupon bulk MSR packages, growing the portfolio to $3.3 billion market value. Annaly continued to opportunistically buy
MSR bulk packages, which generally saw healthy demand into somewhat lower trading volumes than in 2023.Our strategy
continued to focus on predominantly low coupon, high quality MSR. The current weighted average note rate of the MSR
portfolio is 3.20%, up only slightly from a year ago and well below prevailing mortgage rates at the end of 2024.
Economic Environment
In 2024, the U.S. economy performed strongly, with the gross domestic product (“GDP”) rising by 2.8% on a year-over-year
(“yoy”) basis. This marks the second consecutive year of robust growth, following a 2.9% increase in real GDP in 2023, despite
elevated interest rates. This economic resilience was driven by a strong income growth and sound financial market
performance, which generated wealth gains across households. Consequently, consumer spending made up a majority of U.S.
aggregate demand in 2024. Personal consumption expenditures rose at a 5.3% annual rate per month in 2024, down from 6.4%
in 2024, though slower price gains resulted in stronger inflation-adjusted consumption than in 2023.
The labor force benefited from stable employment and sustained wage growth throughout 2024, with the supply and demand of
the labor market now in better balance compared to the end of 2023. Monthly employment growth slowed but remained in
healthy territory, with the economy adding 186,000 in total nonfarm payroll jobs per month in 2024, compared to 251,000 per
month in 2023. The unemployment rate ended the year at 4.1%, increasing only 0.3 percentage points relative to a year earlier,
and has remained below 4.3% since November 2021. Job openings trended lower but remained elevated relative to pre-
pandemic averages, while layoffs stayed low. As a result of the more balanced labor market, wage growth – as measured by the
Employment Cost Index - decelerated from a pace of 4.3% yoy at the end of 2023 to a still healthy 3.8% yoy at the end of 2024.
Price pressures moderated throughout 2024, but progress has been slow and inflation is still at levels above the Fed’s 2% target.
The headline Personal Consumption Expenditure Chain Price Index (“PCE”), the Fed’s preferred inflation gauge, measured
2.6% in December 2024, modestly slower than the 2.7% pace in December 2023. Notably, energy prices saw a decline,
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
52
particularly in gasoline and fuel. The core measure, which does not include price changes in food and energy sectors, measured
2.8% year-over year, also slightly slower than at the end of 2023. Measures of inflation have shown uneven progress in the
services sector, with shelter inflation slowing at a very gradual pace and remaining above pre-pandemic averages. Additionally,
survey measures of short-run inflation expectations continued to decline in 2024, while longer-term inflation expectations
appear well anchored. The inflation outlook for 2025 is uncertain, as many policy proposals from President Donald Trump’s
new administration – such as expansionary fiscal policy, immigration restrictions, and tariffs – indicate potential inflationary
pressures.
U.S Treasury yields moved higher given the resilience of the U.S. economy and elevated supply of Treasury debt hitting the
market during the year. The yield on the 10-year Treasury note ended the year 69 basis points (“bps”) higher at 4.57%, despite
the 100 bps move lower in the Fed Funds rate. The 10-year Treasury Inflation Protected Security (“TIPS”), which subtracts the
expected inflation rate from the bond’s nominal yield, rose 52 bps as market participants revised upward their estimate of the
Fed’s neutral rate in light of the resilient macroeconomy. Meanwhile, the mortgage basis, or the spread between the 30-year
Agency MBS coupon and 10-year U.S. Treasury rate, widened slightly, ending the year 11 bps tighter than in December 2023.
The following table below presents interest rates and spreads at each date presented:
As of December 31,
2024
2023
2022
30-Year mortgage current coupon
5.83%
5.25%
5.39%
Mortgage basis
126 bps
137 bps
152 bps
10-Year U.S. Treasury rate
4.57%
3.88%
3.87%
OIS SOFR Swaps
1-Month
4.32%
5.35%
4.36%
6-Month
4.25%
5.15%
4.80%
Results of Operations
The results of our operations are affected by various factors, many of which are beyond our control. Certain of such risks and
uncertainties are described herein (see “Special Note Regarding Forward-Looking Statements” above) and in Part I, Item 1A.
“Risk Factors”.
This Management Discussion and Analysis section contains analysis and discussion of financial results computed in accordance
with U.S. generally accepted accounting principles (“GAAP”) and non-GAAP measurements. To supplement our consolidated
financial statements, which are prepared and presented in accordance with GAAP, we provide non-GAAP financial measures to
enhance investor understanding of our period-over-period operating performance and business trends, as well as for assessing
our performance versus that of industry peers.
Refer to the “Non-GAAP Financial Measures” section for additional information.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
53
Net Income (Loss) Summary
The following table presents financial information related to our results of operations as of and for the years ended December
31, 2024, 2023 and 2022.
As of and for the Years Ended December 31,
2024
2023
2022
(dollars in thousands, except per share data)
Interest income
$
4,840,034
$
3,731,581
$
2,778,887
Interest expense
4,592,238
3,842,965
1,309,735
Net interest income
247,796
(111,384)
1,469,152
Servicing and related income
485,406
364,157
246,926
Servicing and related expense
49,469
37,652
25,145
Net servicing income
435,937
326,505
221,781
Other income (loss)
514,651
(1,651,591)
243,787
Less: Total general and administrative expenses
171,356
162,553
162,729
Income (loss) before income taxes
1,027,028
(1,599,023)
1,771,991
Income taxes
15,260
39,434
45,571
Net income (loss)
1,011,768
(1,638,457)
1,726,420
Less: Net income (loss) attributable to noncontrolling interests
9,862
4,714
1,095
Net income (loss) attributable to Annaly
1,001,906
(1,643,171)
1,725,325
Less: Dividends on preferred stock
154,551
141,676
110,623
Net income (loss) available (related) to common stockholders
$
847,355
$
(1,784,847)
$
1,614,702
Net income (loss) per share available (related) to common stockholders
Basic
$
1.62
$
(3.61)
$
3.93
Diluted
$
1.62
$
(3.61)
$
3.92
Weighted average number of common shares outstanding
Basic
521,737,554
494,541,323
411,348,484
Diluted
522,747,610
494,541,323
411,621,758
Other information
Investment portfolio at period-end
$
98,185,671
$
87,396,467
$
78,469,860
Average total assets
$
96,690,348
$
88,177,773
$
78,768,785
Average equity
$
11,868,202
$
11,437,590
$
11,616,995
GAAP leverage at period-end (1)
7.1:1
6.8:1
6.0:1
GAAP capital ratio at period-end (2)
12.3%
12.2%
13.9%
Annualized return (loss) on average total assets
1.05%
(1.86%)
2.19%
Annualized return (loss) on average equity
8.53%
(14.33%)
14.86%
Net interest margin (3)
0.26%
(0.13%)
1.92%
Average yield on interest earning assets (4)
5.15%
4.32%
3.64%
Average GAAP cost of interest bearing liabilities (5)
5.38%
5.13%
2.03%
Net interest spread
(0.23%)
(0.81%)
1.61%
Weighted average experienced CPR for the period
7.4%
6.5%
12.2%
Weighted average projected long-term CPR at period-end
8.6%
9.4%
7.8%
Common stock book value per share
$
19.15
$
19.44
$
20.79
Non-GAAP metrics *
Interest income (excluding PAA)
$
4,825,793
$
3,733,235
$
2,418,300
Economic interest expense (5)
$
3,338,791
$
2,257,912
$
943,574
Economic net interest income (excluding PAA)
$
1,487,002
$
1,475,323
$
1,474,726
Premium amortization adjustment cost (benefit)
$
(14,241)
$
1,654
$
(360,587)
Earnings available for distribution (6)
$
1,564,625
$
1,554,014
$
1,850,138
Earnings available for distribution per average common share
$
2.70
$
2.86
$
4.23
Annualized EAD return on average equity (excluding PAA)
13.28%
13.71%
16.02%
Economic leverage at period-end (1)
5.5:1
5.7:1
6.3:1
Economic capital ratio at period-end (2)
14.6%
14.0%
13.4%
Net interest margin (excluding PAA) (3)
1.57%
1.62%
2.03%
Average yield on interest earning assets (excluding PAA) (4)
5.13%
4.33%
3.16%
Average economic cost of interest bearing liabilities (5)
3.91%
3.01%
1.46%
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
54
Net interest spread (excluding PAA)
1.22%
1.32%
1.70%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued, and
U.S. Treasury securities sold, not yet purchased divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-
announced (“TBA”) and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists
of repurchase agreements, other secured financing (excluding certain non-recourse credit facilities), and U.S. Treasury securities sold, not yet purchased.
Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, and participations issued are non-recourse to us
and are excluded from economic leverage.
(2) GAAP capital ratio is computed as total equity divided by total assets. Economic capital ratio is computed as total equity divided by total economic assets.
Total economic assets include the implied market value of TBA derivatives and net of debt issued by securitization vehicles.
(3) Net interest margin represents our interest income less interest expense divided by the average interest earning assets. Net interest margin does not include
net interest component of interest rate swaps. Net interest margin (excluding PAA) represents the sum of our interest income (excluding PAA) plus TBA
dollar roll income and CMBX coupon income less economic interest expense divided by the sum of average interest earning assets plus average
outstanding TBA contract and CMBX balances.
(4) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets
reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using
annualized interest income (excluding PAA).
(5) Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest
bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic
interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense, the net interest
component of interest rate swaps, and, beginning with the quarter ended June 30, 2024, net interest on initial margin related to interest rate swaps, which is
reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss). Prior period results have not been adjusted in
accordance with this change as the impact is not material. Net interest on variation margin related to interest rate swaps was previously and is currently
included in the Net interest component of interest rate swaps in the Company's Consolidated Statements of Comprehensive Income (Loss) for all periods
presented.
(6) Excludes dividends on preferred stock.
GAAP
Net income (loss) was $1.0 billion, which includes $9.9 million attributable to noncontrolling interests, or $1.62 per average
basic common share, for the year ended December 31, 2024 compared to ($1.6) billion, which includes $4.7 million attributable
to noncontrolling interests, or ($3.61) per average basic common share, for the same period in 2023. We attribute the majority
of the change in net income (loss) to a favorable change in net gains (losses) on derivatives, net interest income, net gains
(losses) on investments and other, and net servicing income. Net gains (losses) on derivatives for the year ended December 31,
2024 was $2.3 billion compared to $400.1 million for the same period in 2023. Net interest income for the year ended
December 31, 2024 was $247.8 million compared to ($111.4) million for the same period in 2023. Net gains (losses) on
investments and other for the year ended December 31, 2024 was ($1.8) billion compared to ($2.1) billion for the same period
in 2023. Net servicing income for the year ended December 31, 2024 was $435.9 million compared to $326.5 million for the
same period in 2023. Refer to the section titled “Other income (loss)” located within this Item 7 for additional information
related to these changes.
Non-GAAP
Earnings available for distribution were $1.6 billion, or $2.70 per average common share, for the year ended December 31,
2024, compared to $1.6 billion, or $2.86 per average common share, for the same period in 2023. The change in earnings
available for distribution for the year ended December 31, 2024 compared to the same period in 2023 was primarily due to
higher coupon income, resulting from higher residential mortgage loan balances and purchasing securities higher up in the
coupon stack, and higher net servicing income. This change was almost entirely offset by higher interest expense from an
increase in average borrowing rates and average interest bearing liabilities, and an unfavorable change in the net interest
component of interest rate swaps.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
55
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide
the following non-GAAP financial measures:
•
earnings available for distribution (“EAD”);
•
earnings available for distribution attributable to
common stockholders;
•
earnings available for distribution per average
common share;
•
annualized EAD return on average equity;
•
economic leverage;
•
economic capital ratio;
•
interest income (excluding PAA);
•
economic interest expense;
•
economic net interest income (excluding PAA);
•
average yield on interest earning assets (excluding
PAA);
•
average economic cost of interest bearing liabilities;
•
net interest margin (excluding PAA); and
•
net interest spread (excluding PAA).
These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with
GAAP. While intended to offer a fuller understanding of our results and operations, non-GAAP financial measures also have
limitations. For example, we may calculate our non-GAAP metrics, such as earnings available for distribution, or the PAA,
differently than our peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude
the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future
periodic amortization nor is it indicative of the term over which we will amortize the remaining unamortized premium. Changes
to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and
non-GAAP results.
These non-GAAP measures provide additional detail to enhance investor understanding of our period-over-period operating
performance and business trends, as well as for assessing our performance versus that of industry peers. Additional information
pertaining to our use of these non-GAAP financial measures, including discussion of how each such measure may be useful to
investors, and reconciliations to their most directly comparable GAAP results are provided below.
Earnings Available for Distribution, Earnings Available for Distribution Attributable to Common Stockholders, Earnings
Available for Distribution Per Average Common Share and Annualized EAD Return on Average Equity
Our principal business objective is to generate net income for distribution to our stockholders and optimize our returns through
prudent management of our diversified investment strategies. We generate net income by earning a net interest spread on our
investment portfolio, which is a function of interest income from our investment portfolio less financing, hedging and operating
costs. Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll
income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss)
(excluding depreciation and amortization expense on real estate and related intangibles, non-EAD income allocated to equity
method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses
(excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD
income (loss) items), and excludes (g) the premium amortization adjustment (“PAA”) representing the cumulative impact on
prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to
our Agency mortgage-backed securities, is used by management and, we believe, used by analysts and investors to measure our
progress in achieving our principal business objective.
We seek to fulfill our principal business objective through a variety of factors including portfolio construction, the degree of
market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of
our capital allocation policy and risk governance framework.
We believe these non-GAAP measures provide management and investors with additional details regarding our underlying
operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in
fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive
income (loss), and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to
provide additional transparency into the operating performance of our portfolio. In addition, EAD serves as a useful indicator
for investors in evaluating our performance and ability to pay dividends. Annualized EAD return on average equity, which is
calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional
detail on the earnings available for distribution generated by our invested equity capital.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
56
The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the
periods presented:
For the Years Ended December 31,
2024
2023
2022
(dollars in thousands, except per share data)
GAAP net income (loss)
$
1,011,768
$ (1,638,457)
$
1,726,420
Adjustments to exclude reported realized and unrealized (gains) losses
Net (gains) losses on investments and other (1)
1,849,607
2,137,538
4,602,456
Net (gains) losses on derivatives (2)
(1,066,394)
1,184,961
(4,493,013)
Loan loss provision (reversal) (3)
—
(219)
(22,923)
Business divestiture-related (gains) losses
—
—
40,258
Other adjustments
Amortization of intangibles
2,690
4,573
3,948
Non-EAD (income) loss allocated to equity method investments (4)
506
354
(15,499)
Transaction expenses and non-recurring items (5)
20,283
8,209
7,620
Income tax effect of non-EAD income (loss) items
3,444
31,570
46,070
TBA dollar roll income and CMBX coupon income (6)
2,815
20,621
431,475
MSR amortization (7)
(233,698)
(182,151)
(114,992)
EAD attributable to noncontrolling interests
(12,155)
(14,639)
(1,095)
Premium amortization adjustment cost (benefit)
(14,241)
1,654
(360,587)
Earnings available for distribution *
1,564,625
1,554,014
1,850,138
Dividends on preferred stock
154,551
141,676
110,623
Earnings available for distribution attributable to common stockholders *
$
1,410,074
$
1,412,338
$
1,739,515
GAAP net income (loss) per average common share
$
1.62
$
(3.61)
$
3.93
Earnings available for distribution per average common share *
$
2.70
$
2.86
$
4.23
GAAP return (loss) on average equity
8.53%
(14.33%)
14.86%
EAD return on average equity (excluding PAA) *
13.28%
13.71%
16.02%
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures.
(1) Includes write-downs or recoveries which are reported in Other, net in the Company's Consolidated Statements of Comprehensive Income (Loss).
(2) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in
earnings available for distribution. The net interest component of interest rate swaps totaled $1.2 billion, $1.6 billion and $366.2 million for the years
ended December 31, 2024, 2023 and 2022, respectively.
(3) Includes $0.0 million, $0.0 million, and ($2.3) million of loss provision (reversal) on unfunded loan commitments for the years ended December 31, 2024,
2023 and 2022, respectively, which is reported in Other, net in the Consolidated Statements of Comprehensive Income (Loss).
(4) Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other, net in the Consolidated Statements
of Comprehensive Income (Loss).
(5) Represents costs incurred in connection with securitizations of residential whole loans.
(6) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives in the Consolidated Statements of
Comprehensive Income (Loss). CMBX coupon income totaled $0.0 million, $1.5 million and $4.4 million for the years ended December 31, 2024, 2023
and 2022, respectively.
(7) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected
MSR yield income and net servicing income for the period.
From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS. A
TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS with a specified issuer, term and coupon.
A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are
simultaneously bought and sold. The TBA contract settling in the later month typically prices at a discount to the earlier month
contract with the difference in price commonly referred to as the “drop”. The drop is a reflection of the expected net interest
income from an investment in similar Agency MBS, net of an implied financing cost, that would be foregone as a result of
settling the contract in the later month rather than in the earlier month. The drop between the current settlement month price and
the forward settlement month price occurs because in the TBA dollar roll market, the party providing the financing is the party
that would retain all principal and interest payments accrued during the financing period. Accordingly, TBA dollar roll income
generally represents the economic equivalent of the net interest income earned on the underlying Agency MBS less an implied
financing cost.
TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions. The fair value of TBA
derivatives is based on methods similar to those used to value Agency MBS. We record TBA derivatives at fair value in our
Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on
derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains
and losses on derivatives.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
57
TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different
settlement dates multiplied by the notional amount of the TBA contract. Although accounted for as derivatives, TBA dollar
rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency MBS (interest income less an
implied cost of financing). TBA dollar roll income is reported as a component of Net gains (losses) on derivatives in the
Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities of a particular
rating and vintage. The CMBX index allows investors to take a long position (referred to as selling protection) or short position
(referred to as purchasing protection) on the respective basket of commercial mortgage-backed securities and is structured as a
“pay-as-you-go” contract whereby the protection seller receives and the protection buyer pays a standardized running coupon
on the contracted notional amount. Additionally, the protection seller is obligated to pay to the protection buyer the amount of
principal losses and/or coupon shortfalls on the underlying commercial mortgage-backed securities as they occur. We report
income (expense) on CMBX positions in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive
Income (Loss). The coupon payments received or paid on CMBX positions is equivalent to interest income (expense) and
therefore included in earnings available for distribution.
Premium Amortization Expense
In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency MBS, excluding
interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the
calculation of the effective yield. We recalculate the effective yield as differences between anticipated and actual prepayments
occur. Using third party models and market information to project future cash flows and expected remaining lives of securities,
the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s
acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective
yield been applied since the acquisition date. The adjustment to amortized cost is offset with a charge or credit to interest
income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of
premium amortization recognized in any given period.
Our GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of our
non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the
cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term Constant
Prepayment Rate (“CPR”).
The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio
for the periods presented:
For the Years Ended December 31,
2024
2023
2022
(dollars in thousands)
Premium amortization expense
$
98,813
$
165,158
$
48,013
Less: PAA cost (benefit)
(14,241)
1,654
(360,587)
Premium amortization expense (excluding PAA)
$
113,054
$
163,504
$
408,600
Economic Leverage and Economic Capital Ratios
We use capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between
the yield on our assets and the cost of our borrowings and hedging activities. Our capital structure is designed to offer an
efficient complement of funding sources to generate positive risk-adjusted returns for our stockholders while maintaining
appropriate liquidity to support our business and meet our financial obligations under periods of market stress. To maintain our
desired capital profile, we utilize a mix of debt and equity funding. Debt funding may include the use of repurchase agreements,
loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible
bonds, mortgages payable or other liabilities. Equity capital primarily consists of common and preferred stock.
Our economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding,
and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements,
other secured financing and U.S Treasury securities sold, not yet purchased. Debt issued by securitization vehicles and
participations issued are non-recourse to us and are excluded from economic leverage.
The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating our economic leverage
ratio for the periods presented:
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
58
As of
December 31, 2024
December 31, 2023
Economic leverage ratio reconciliation
(dollars in thousands)
Repurchase agreements
$
65,688,923
$
62,201,543
Other secured financing
750,000
500,000
Debt issued by securitization vehicles
19,540,678
11,600,338
Participations issued
1,154,816
1,103,835
U.S. Treasury securities sold, not yet purchased
2,470,629
2,132,751
Total GAAP debt
$
89,605,046
$
77,538,467
Less Non-recourse debt:
Debt issued by securitization vehicles
(19,540,678)
(11,600,338)
Participations issued
(1,154,816)
(1,103,835)
Total recourse debt
$
68,909,552
$
64,834,294
Plus / (Less):
Cost basis of TBA and CMBX derivatives
3,158,058
(555,221)
Payable for unsettled trades
308,282
3,249,389
Receivable for unsettled trades
(2,201,447)
(2,710,224)
Economic debt *
$
70,174,445
$
64,818,238
Total equity
$
12,696,952
$
11,345,091
Economic leverage ratio *
5.5:1
5.7:1
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on
non-GAAP financial measures.
The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating our
economic capital ratio for the periods presented:
As of
December 31, 2024
December 31, 2023
Economic capital ratio reconciliation
(dollars in thousands)
Total GAAP assets
$
103,556,384
$
93,227,236
Less:
Gross unrealized gains on TBA derivatives (1)
(8,635)
(20,689)
Debt issued by securitization vehicles
(19,540,678)
(11,600,338)
Plus:
Implied market value of TBA derivatives
3,136,154
(573,602)
Total economic assets *
$
87,143,225
$
81,032,607
Total equity
$
12,696,952
$
11,345,091
Economic capital ratio (2)*
14.6%
14.0%
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional
information on non-GAAP financial measures.
(1) Included in Derivative assets in the Consolidated Statements of Financial Condition.
(2) Economic capital ratio is computed as total equity divided by total economic assets.
Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)
Interest income (excluding PAA) represents interest income excluding the effect of the premium amortization adjustment, and
serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA)
and net interest margin (excluding PAA), which are discussed below. We believe this measure provides management and
investors with additional detail to enhance their understanding of our operating results and trends by excluding the component
of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term
prepayment speeds related to our Agency MBS (other than interest-only securities, multifamily and reverse mortgages), which
can obscure underlying trends in the performance of the portfolio.
Economic interest expense is comprised of GAAP interest expense, the net interest component of interest rate swaps (which
includes net interest on variation margin related to interest rate swaps) and net interest on initial margin related to interest rate
swaps, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss). We use
interest rate swaps to manage our exposure to changing interest rates on repurchase agreements by economically hedging cash
flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest
expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
59
additional information about the cost of our financing strategy. We may use market agreed coupon (“MAC”) interest rate swaps
in which we may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-
market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps
are not reflected in the net interest component of interest rate swaps, which is presented in Net gains (losses) on derivatives in
the Consolidated Statements of Comprehensive Income (Loss).
Similarly, economic net interest income (excluding PAA), as computed below, provides investors with additional information
to enhance their understanding of the net economics of our primary business operations.
The following tables present a reconciliation of GAAP interest income and GAAP interest expense to non-GAAP interest
income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the
periods presented:
Interest Income (excluding PAA)
GAAP Interest
Income
PAA Cost
(Benefit)
Interest Income
(excluding PAA) *
For the years ended
(dollars in thousands)
December 31, 2024
$
4,840,034
$
(14,241) $
4,825,793
December 31, 2023
$
3,731,581
$
1,654
$
3,733,235
December 31, 2022
$
2,778,887
$
(360,587) $
2,418,300
* Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional
information on non-GAAP financial measures.
Economic Interest Expense and Economic Net Interest Income (excluding PAA)
GAAP
Interest
Expense
Add: Net
Interest
Component of
Interest Rate
Swaps and
Net Interest
on Initial
Margin
Economic
Interest
Expense * (1)
GAAP Net
Interest
Income
Less: Net
Interest
Component
of Interest
Rate Swaps
Economic
Net
Interest
Income *
Add: PAA
Cost
(Benefit)
Economic
Net Interest
Income
(excluding
PAA) *
For the years ended
(dollars in thousands)
December 31, 2024
$ 4,592,238
$
(1,253,447) $ 3,338,791
$
247,796
$
(1,253,447) $ 1,501,243
$
(14,241) $ 1,487,002
December 31, 2023
$ 3,842,965
$
(1,585,053) $ 2,257,912
$
(111,384) $
(1,585,053) $ 1,473,669
$
1,654
$ 1,475,323
December 31, 2022
$ 1,309,735
$
(366,161) $
943,574
$ 1,469,152
$
(366,161) $ 1,835,313
$
(360,587) $ 1,474,726
* Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional information on non-GAAP financial measures.
(1) Economic interest expense is comprised of GAAP interest expense, the net interest component of interest rate swaps, and, beginning with the quarter
ended June 30, 2024, net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statements
of Comprehensive Income (Loss). Prior period results have not been adjusted in accordance with this change as the impact is not material. Net interest on
variation margin related to interest rate swaps was previously and is currently included in the Net interest component of interest rate swaps in the
Company's Consolidated Statements of Comprehensive Income (Loss) for all periods presented.
Experienced and Projected Long-Term CPR
Prepayment speeds, as reflected by the CPR and interest rates vary according to the type of investment, conditions in financial
markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds and
expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases,
thereby reducing the yield on such assets. The following table presents the weighted average experienced CPR and weighted
average projected long-term CPR on our Agency MBS portfolio as of and for the periods presented.
Experienced CPR (1)
Long-term CPR (2)
For the years ended
December 31, 2024
7.4%
8.6%
December 31, 2023
6.5%
9.4%
December 31, 2022
12.2%
7.8%
(1) For the years ended December 31, 2024, 2023 and 2022, respectively.
(2) At December 31, 2024, 2023 and 2022, respectively.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
60
Average Yield on Interest Earning Assets (excluding PAA), Net Interest Spread (excluding PAA), Net Interest Margin
(excluding PAA) and Average Economic Cost of Interest Bearing Liabilities
Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding
PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense
divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of
interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less economic interest expense
divided by the sum of average interest earning assets plus average TBA contract and CMBX balances, provide management
with additional measures of our profitability that management relies upon in monitoring the performance of the business.
Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management
evaluates our performance.
Net Interest Spread (excluding PAA)
Average
Interest
Earning
Assets (1)
Interest
Income
(excluding
PAA) *
Average
Yield on
Interest
Earning
Assets
(excluding
PAA) *
Average
Interest
Bearing
Liabilities
Economic
Interest
Expense * (2)
Average
Economic
Cost of
Interest
Bearing
Liabilities *
(2)
Economic
Net
Interest
Income
(excluding
PAA) *
Net
Interest
Spread
(excluding
PAA) *
For the years ended
(dollars in thousands)
December 31, 2024
$94,000,885
$4,825,793
5.13%
$85,294,238
$3,338,791
3.91%
$1,487,002
1.22%
December 31, 2023
$86,305,249
$3,733,235
4.33%
$74,962,858
$2,257,912
3.01%
$1,475,323
1.32%
December 31, 2022
$76,429,267
$2,418,300
3.16%
$64,512,269
$943,574
1.46%
$1,474,726
1.70%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) Based on amortized cost.
(2) Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents
annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest
expense, the net interest component of interest rate swaps, and, beginning with the quarter ended June 30, 2024, net interest on initial margin
related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss). Prior
period results have not been adjusted in accordance with this change as the impact is not material. Net interest on variation margin related to
interest rate swaps was previously and is currently included in the Net interest component of interest rate swaps in the Company's Consolidated
Statements of Comprehensive Income (Loss) for all periods presented.
Net Interest Margin (excluding PAA)
Interest
Income
(excluding
PAA) *
TBA Dollar
Roll and
CMBX
Coupon
Income (1)
Economic
Interest
Expense * (2)
Subtotal
Average
Interest
Earnings
Assets
Average
TBA
Contract
and CMBX
Balances
Subtotal
Net
Interest
Margin
(excluding
PAA) *
For the years ended
(dollars in thousands)
December 31, 2024
$4,825,793
2,815
(3,338,791)
$1,489,817
$94,000,885
1,033,990
$95,034,875
1.57%
December 31, 2023
$3,733,235
20,621
(2,257,912)
$1,495,944
$86,305,249
6,010,685
$92,315,934
1.62%
December 31, 2022
$2,418,300
431,475
(943,574)
$1,906,201
$76,429,267
17,533,362
$93,962,629
2.03%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives. CMBX coupon income
totaled $0.0 million, $1.5 million and $4.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.
(2) Economic interest expense is comprised of GAAP interest expense, the net interest component of interest rate swaps, and, beginning with the
quarter ended June 30, 2024, net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s
Consolidated Statements of Comprehensive Income (Loss). Prior period results have not been adjusted in accordance with this change as the
impact is not material. Net interest on variation margin related to interest rate swaps was previously and is currently included in the Net interest
component of interest rate swaps in the Company's Consolidated Statements of Comprehensive Income (Loss) for all periods presented.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
61
Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities
Typically, our largest expense is the cost of interest bearing liabilities and the net interest component of interest rate swaps. The
following table shows our average interest bearing liabilities and average economic cost of interest bearing liabilities as
compared to average one-month and average six-month SOFR for the periods presented.
Average Economic Cost of Interest Bearing Liabilities
Average
Interest
Bearing
Liabilities
Interest
Bearing
Liabilities at
Period End
Economic
Interest
Expense *
(1)
Average
Economic
Cost of
Interest
Bearing
Liabilities
*
Average
One-
Month
Term
SOFR
Average
Six-
Month
Term
SOFR
Average
One-
Month
Term
SOFR
Relative to
Average
Six-
Month
Term
SOFR
Average
Economic
Cost
of Interest
Bearing
Liabilities
Relative to
Average
One-
Month Term
SOFR
Average
Economic
Cost
of Interest
Bearing
Liabilities
Relative to
Average
Six-Month
Term
SOFR
For the years ended
(dollars in thousands)
December 31, 2024 $ 85,294,238
$ 88,855,046
$ 3,338,791
3.91%
5.12%
4.92%
0.20%
(1.21%)
(1.01%)
December 31, 2023 $ 74,962,858
$ 77,038,467
$ 2,257,912
3.01%
5.07%
5.22%
(0.15%)
(2.06%)
(2.21%)
December 31, 2022 $ 64,512,269
$ 68,307,606
$
943,574
1.46%
1.85%
2.52%
(0.67%)
(0.39%)
(1.06%)
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) Economic interest expense is comprised of GAAP interest expense, the net interest component of interest rate swaps, and, beginning with the quarter
ended June 30, 2024, net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated
Statements of Comprehensive Income (Loss). Prior period results have not been adjusted in accordance with this change as the impact is not material. Net
interest on variation margin related to interest rate swaps was previously and is currently included in the Net interest component of interest rate swaps in
the Company's Consolidated Statements of Comprehensive Income (Loss) for all periods presented.
2024 Compared with 2023
Economic interest expense increased by $1.1 billion for the year ended December 31, 2024 compared to the same period in
2023. The change was primarily due to higher average interest bearing liabilities from an increase in securitized debt balances
due to the 21 securitizations closed during the year ended December 31, 2024 combined with higher repurchase agreement
balances and higher borrowing rates. This was partially offset by the change in the net interest component of interest rate swaps,
which was $1.2 billion for the year ended December 31, 2024 compared to $1.6 billion for the same period in 2023.
We do not manage our portfolio to have a pre-designated amount of borrowings at quarter or year end. Our borrowings at
period end are a snapshot of our borrowings as of a date, and this number may differ from average borrowings over the period
for a number of reasons. The mortgage-backed securities we own pay principal and interest towards the end of each month and
the mortgage-backed securities we purchase are typically settled during the beginning of the month. As a result, depending on
the amount of mortgage-backed securities we have committed to purchase, we may retain the principal and interest we receive
in the prior month, or we may use it to pay down our borrowings. Moreover, we generally use interest rate swaps, swaptions
and other derivative instruments to hedge our portfolio, and as we pledge or receive collateral under these agreements, our
borrowings on any given day may be increased or decreased. Our average borrowings during a quarter may differ from period
end borrowings as we implement our portfolio management strategies and risk management strategies over changing market
conditions by increasing or decreasing leverage. Additionally, these numbers may differ during periods when we conduct equity
capital raises, as in certain instances we may purchase additional assets and increase leverage in anticipation of an equity capital
raise. Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings
during a period provide a more accurate representation of our exposure to the risks associated with leverage than our period end
borrowings.
At December 31, 2024 and December 31, 2023 the majority of our debt represented repurchase agreements and other secured
financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and MSR. All of our
Residential Securities are currently accepted as collateral for these borrowings. However, we limit our borrowings, and thus our
potential asset growth, in order to maintain unused borrowing capacity and maintain the liquidity and strength of our balance
sheet.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
62
Other Income (Loss)
2024 Compared with 2023
Net Gains (Losses) on Investments and Other
Net gains (losses) on disposal of investments and other was ($1.1) billion for the year ended December 31, 2024 compared with
($2.9) billion for the same period in 2023. For the year ended December 31, 2024, we disposed of Residential Securities with a
carrying value of $21.4 billion for an aggregate net loss of ($886.0) million. For the same period in 2023, we disposed of
Residential Securities with a carrying value of $36.4 billion for an aggregate net loss of ($2.9) billion.
Net unrealized gains (losses) on instruments measured at fair value through earnings was ($764.5) million for the year ended
December 31, 2024 compared to $797.6 million for the same period in 2023, primarily due to unfavorable changes in
unrealized gains (losses) on Agency MBS of ($1.8) billion, securitized residential whole loans of consolidated VIEs of ($231.0)
million, residential whole loans of ($159.1) million, and CRT securities of ($71.9) million, partially offset by favorable changes
in residential securitized debt of consolidated VIEs of $308.7 million, U.S. Treasury securities sold, not yet purchased of
$293.5 million, participations issued of $71.8 million and MSR of $44.8 million.
Net Gains (Losses) on Derivatives
Net gains (losses) on interest rate swaps for the year ended December 31, 2024 was $2.1 billion compared to $694.7 million for
the same period in 2023, attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains
(losses) on termination or maturity of interest rate swaps, partially offset by the change in the net interest component of interest
rate swaps. Unrealized gains (losses) on interest rate swaps was $1.0 billion for the year ended December 31, 2024 compared to
($815.6) million for the same period in 2023. Realized gains (losses) on termination or maturity of interest rate swaps was
($60.5) million resulting from the termination or maturity of interest rate swaps with a notional amount of $13.7 billion for the
year ended December 31, 2024 compared to ($74.8) million resulting from the termination of interest rate swaps with a notional
amount of $12.7 billion for the same period in 2023. Net interest component of interest rate swaps was $1.2 billion for the year
ended December 31, 2024 compared to $1.6 billion for the same period in 2023 due to a decrease in average net receive rate.
Net gains (losses) on other derivatives was $124.9 million for the year ended December 31, 2024 compared to ($294.6) million
for the same period in 2023. The change in net gains (losses) on other derivatives was primarily due to favorable changes in net
gains (losses) on futures contracts, which was $257.5 million for the year ended December 31, 2024 compared to ($6.8) million
for the same period in 2023, net gains (losses) on TBA derivatives, which was ($16.7) million for the year ended December 31,
2024 compared to ($140.8) million for the same period in 2023, and net gains (losses) on interest rate swaptions, which was
($105.9) million for the year ended December 31, 2024 compared to ($148.8) million for the same period in 2023, partially
offset by an unfavorable change in net gains (losses) on purchase commitments, which was ($10.0) million for the year ended
December 31, 2024 compared to $7.9 million for the same period in 2023.
Other, Net
Other, net includes brokerage and commission fees, due diligence costs, securitization expenses, and interest on custodial
balances. We also report in Other, net items whose amounts, either individually or in the aggregate, would not, in the opinion of
management, be meaningful to readers of the financial statements. Given the nature of certain components of this line item,
balances may fluctuate from period to period. Other, net was $94.9 million for the year ended December 31, 2024 compared to
$73.7 million for the same period in 2023, primarily attributable to an increase in interest on custodial balances, partially offset
by an increase in MSR financing expenses.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist of compensation and other expenses. The following table shows our total
G&A expenses as compared to average total assets and average equity for the periods presented.
G&A Expenses and Operating Expense Ratios
Total G&A
Expenses
Total G&A Expenses/
Average Assets
Total G&A Expenses/
Average Equity
For the years ended
(dollars in thousands)
December 31, 2024
$
171,356
0.18%
1.44%
December 31, 2023
$
162,553
0.18%
1.42%
December 31, 2022
$
162,729
0.21%
1.40%
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
63
2024 Compared with 2023
G&A expenses increased $8.8 million to $171.4 million for the year ended December 31, 2024 compared to the same period in
2023. The change in the period was primarily due to an increase in compensation expense, partially offset by lower expenses
related to technology and professional fees.
Return on Average Equity
The following table shows the components of our annualized return on average equity for the periods presented.
Components of Annualized Return on Average Equity
Economic Net
Interest Income/
Average Equity (1)
Net Servicing
Income/Average
Equity
Other Income
(Loss)/Average
Equity (2)
G&A Expenses/
Average Equity
Income
Taxes/ Average
Equity
Return on
Average Equity
For the years ended
December 31, 2024
12.22%
3.67%
(5.79%)
(1.44%)
(0.13%)
8.53%
December 31, 2023
12.88%
2.85%
(28.30%)
(1.42%)
(0.34%)
(14.33%)
December 31, 2022
15.80%
1.91%
(1.06%)
(1.40%)
(0.39%)
14.86%
(1) Economic net interest income includes the net interest component of interest rate swaps and, beginning with the quarter ended June 30, 2024, net interest
on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income
(Loss). Prior period results have not been adjusted in accordance with this change as the impact is not material. Net interest on variation margin related to
interest rate swaps was previously and is currently included in the Net interest component of interest rate swaps in the Company's Consolidated Statements
of Comprehensive Income (Loss) for all periods presented..
(2) Other income (loss) excludes the net interest component of interest rate swaps.
Unrealized Gains and Losses - Available-for-Sale Investments
The unrealized fluctuations in market values of our available-for-sale Agency MBS, for which the fair value option is not
elected, do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value
of the asset and stockholders’ equity under accumulated other comprehensive income (loss). As a result of this fair value
accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used amortized cost
accounting. As a result, comparisons with companies that use amortized cost accounting for some or all of their balance sheet
may not be meaningful.
The following table shows cumulative unrealized gains and losses on our available-for-sale investments reflected in the
Consolidated Statements of Financial Condition.
December 31, 2024
December 31, 2023
(dollars in thousands)
Unrealized gain
$
4,221
$
5,051
Unrealized loss
(1,021,903)
(1,340,451)
Accumulated other comprehensive income (loss)
$
(1,017,682) $
(1,335,400)
Unrealized changes in the estimated fair value of available-for-sale investments may have a direct effect on our potential
earnings and dividends: positive changes will increase our equity base and allow us to increase our borrowing capacity while
negative changes tend to reduce borrowing capacity. A very large negative change in the net fair value of our available-for-sale
Residential Securities might impair our liquidity position, requiring us to sell assets with the potential result of realized losses
upon sale.
The fair value of these securities being less than amortized cost at December 31, 2024 is solely due to market conditions and
not the quality of the assets. Substantially all of the Agency MBS have an actual or implied credit rating that is the same as that
of the U.S. government. The investments do not require an allowance for credit losses because we currently have the ability and
intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or
beyond the cost of the investments, and it is not more likely than not that we will be required to sell the investments before
recovery of the amortized cost bases, which may be maturity. Also, we are guaranteed payment of the principal and interest
amounts of the securities by the respective issuing Agency.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
64
Financial Condition
Total assets were $103.6 billion and $93.2 billion at December 31, 2024 and 2023, respectively. The change was primarily due
to increases in residential mortgage loans, including securitized residential whole loans of consolidated VIEs, of $9.9 billion
and MSR of $0.8 billion, partially offset by decreases in receivable for unsettled trades of $0.5 billion. Our portfolio
composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at December 31, 2024:
Agency MBS
Residential Credit (1)
MSR
Total
Assets
(dollars in thousands)
Fair value
$
67,434,068
$
27,842,469
$
2,909,134
$
98,185,671
Implied market value of derivatives (2)
3,136,154
—
—
3,136,154
Debt
Repurchase agreements
61,241,318
4,447,605
—
65,688,923
Implied cost basis of derivatives (2)
3,158,058
—
—
3,158,058
Other secured financing
—
—
750,000
750,000
Debt issued by securitization vehicles
—
19,540,678
—
19,540,678
Participations issued
—
1,154,816
—
1,154,816
U.S. Treasury securities sold, not yet purchased
2,425,767
58,781
(13,919)
2,470,629
Net forward purchases
(1,861,842)
—
(31,323)
(1,893,165)
Other
Net other assets / liabilities
1,827,423
170,933
246,710
2,245,066
Net equity allocated
$
7,434,344
$
2,811,522
$
2,451,086
$
12,696,952
Net equity allocated (%)
59%
22%
19%
100%
Debt/net equity ratio (3)
8.6:1
9.0:1
0.3:1
7.1:1
(1) Fair value includes residential loans held for sale, commercial assets and liabilities and assets and liabilities associated with non-controlling interests.
(2) Derivatives include TBA contracts under Agency MBS.
(3) Represents the debt/net equity ratio as determined using amounts in the Consolidated Statements of Financial Condition.
Residential Securities
Substantially all of our Agency MBS at December 31, 2024 and December 31, 2023 were backed by single-family residential
mortgage loans and were secured with a first lien position on the underlying single-family properties. Our mortgage-backed
securities were largely Fannie Mae, Freddie Mac or Ginnie Mae pass through certificates or CMOs, which have an actual or
implied credit rating that is the same as that of the U.S. government. We carry all of our Agency MBS at fair value in the
Consolidated Statements of Financial Condition.
We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and
we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets. At
December 31, 2024 and December 31, 2023 we had in our Consolidated Statements of Financial Condition a total of $1.3
billion and $1.4 billion, respectively, of unamortized discount (which is the difference between the remaining principal value
and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.5 billion and
$2.4 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the
current amortized cost of our Residential Securities acquired at a price above principal value).
The weighted average experienced prepayment speed on our Agency MBS portfolio for the years ended December 31, 2024
and 2023 was 7.4% and 6.5%, respectively. The weighted average projected long-term prepayment speed on our Agency MBS
portfolio as of December 31, 2024 and 2023 was 8.6% and 9.4%, respectively.
Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-
backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed
securities as we would be required to amortize our net premium balance into income over a shorter time period. Similarly, if
mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being
equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net
premium balance over a longer time period.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
65
The following table presents our Residential Securities that were carried at fair value at December 31, 2024 and December 31,
2023.
December 31, 2024
December 31, 2023
Estimated Fair Value
Agency
(dollars in thousands)
Fixed-rate pass-through
$
63,049,674
$
62,198,941
Adjustable-rate pass-through
162,238
191,489
CMO
73,684
82,972
Interest-only
380,732
264,005
Multifamily
3,741,765
3,544,528
Reverse mortgages
25,975
26,853
Total agency securities
$
67,434,068
$
66,308,788
Residential credit
Credit risk transfer
$
754,915
$
974,059
Alt-A
164,892
150,235
Prime
45,790
180,647
Subprime
245,583
235,605
NPL/RPL
878,608
1,197,555
Prime jumbo (>= 2010 vintage)
158,313
344,232
Total residential credit securities
$
2,248,101
$
3,082,333
Total Residential Securities
$
69,682,169
$
69,391,121
The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed
securities) and interest-only mortgage-backed securities at December 31, 2024 and December 31, 2023.
December 31, 2024
December 31, 2023
Residential Securities (1)
(dollars in thousands)
Principal amount
$
70,783,559
$
70,078,626
Net premium
110,212
63,902
Amortized cost
70,893,771
70,142,528
Amortized cost / principal amount
100.16%
100.09%
Carrying value
68,717,038
68,701,769
Carrying value / principal amount
97.08%
98.04%
Weighted average coupon rate
5.02%
4.68%
Weighted average yield
4.96%
4.64%
Adjustable-rate Residential Securities (1)
Principal amount
$
951,400
$
1,206,700
Weighted average coupon rate
8.41%
8.79%
Weighted average yield
7.59%
8.09%
Weighted average term to next adjustment (2)
6 Months
8 Months
Weighted average lifetime cap (3)
9.33%
9.34%
Principal amount at period end as % of total residential securities
1.34%
1.72%
Fixed-rate Residential Securities (1)
Principal amount
$
69,832,159
$
68,871,926
Weighted average coupon rate
4.97%
4.61%
Weighted average yield
4.93%
4.58%
Principal amount at period end as % of total residential securities
98.66%
98.28%
Interest-only Residential Securities
Notional amount
$
38,352,812
$
25,918,105
Net premium
1,091,361
865,467
Amortized cost
1,091,361
865,467
Amortized cost / notional amount
2.85%
3.34%
Carrying value
965,131
689,352
Carrying value / notional amount
2.52%
2.66%
Weighted average coupon rate
0.46%
0.43%
Weighted average yield
2.40%
NM
(1) Excludes interest-only MBS.
(2) Excludes non-Agency MBS and CRT securities.
(3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes.
NM Not meaningful.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
66
The following tables summarize certain characteristics of our Residential Credit portfolio at December 31, 2024.
Payment Structure
Investment Characteristics (1)
Product
Estimated
Fair Value
Senior
Subordinate
Coupon
Credit
Enhancement
60+
Delinquencies
3M VPR (2)
(dollars in thousands)
Credit risk transfer
$ 754,915
$
—
$
754,915
9.09%
1.71%
1.02%
5.00%
Alt-A
164,892
—
164,892
7.08%
9.98%
4.35%
16.68%
Prime
45,790
33,757
12,033
4.18%
0.76%
1.71%
3.54%
Subprime
245,583
54,598
190,985
7.18%
24.04%
13.48%
13.88%
Re-performing loan securitizations
586,731
361,769
224,962
6.54%
27.36%
17.31%
19.90%
Non-performing loan securitizations
291,877
261,524
30,353
6.85%
35.15%
72.48%
8.65%
Prime jumbo (>=2010 vintage)
158,313
90,110
68,203
5.12%
1.05%
0.80%
5.75%
Total/weighted average
$ 2,248,101
$ 801,758
$ 1,446,343
7.45%
16.75%
16.99%
11.45%
(1) Investment characteristics exclude the impact of interest-only securities.
(2) Represents the 3 month voluntary prepayment rate (“VPR”).
Bond Coupon
Product
ARM
Fixed
Floater
Interest-Only
Estimated
Fair Value
(dollars in thousands)
Credit risk transfer
$
—
$
—
$
754,915
$
—
$
754,915
Alt-A
1,261
163,631
—
—
164,892
Prime
—
18,193
—
27,597
45,790
Subprime
—
226,354
19,158
71
245,583
Re-performing loan securitizations
—
586,731
—
—
586,731
Non-performing loan securitizations
—
291,877
—
—
291,877
Prime jumbo (>=2010 vintage)
—
48,638
19,564
90,111
158,313
Total
$
1,261
$
1,335,424
$
793,637
$
117,779
$
2,248,101
Contractual Obligations
The following table summarizes the effect on our liquidity and cash flows from contractual obligations at December 31, 2024.
The table does not include the effect of net interest rate payments on our interest rate swap agreements. The net swap payments
will fluctuate based on monthly changes in the receive rate. At December 31, 2024, the interest rate swaps had a net fair value
of $14.0 million.
Within One
Year
One to Three
Years
Three to Five
Years
More than
Five Years
Total
(dollars in thousands)
Repurchase agreements
$
65,356,883
$
332,040
$
—
$
—
$
65,688,923
Interest expense on repurchase agreements (1)
284,793
5,555
—
—
290,348
Other secured financing
600,000
150,000
—
—
750,000
Interest expense on other secured financing (1)
37,851
7,971
—
—
45,822
Debt issued by securitization vehicles (principal)
—
—
—
20,468,421
20,468,421
Interest expense on debt issued by securitization vehicles
1,092,527
2,185,054
2,185,054
33,873,297
39,335,932
Participations issued (principal)
—
—
—
1,134,995
1,134,995
Interest expense on participations issued
77,571
155,141
155,141
1,926,225
2,314,078
Long-term operating lease obligations
3,149
2,764
7,685
52,041
65,639
Total
$
67,452,774
$
2,838,525
$
2,347,880
$
57,454,979
$ 130,094,158
(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at December 31, 2024.
In the coming periods, we expect to continue to finance our Residential Securities in a manner that is largely consistent with our
current operations via repurchase agreements. We may use securitization structures, credit facilities, or other term financing
structures to finance certain of our assets. During the year ended December 31, 2024, we received $6.8 billion from principal
repayments and $21.1 billion in cash from disposal of Securities. During the year ended December 31, 2023, we received
$6.2 billion from principal repayments and $31.3 billion in cash from disposal of Securities.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
67
Commitments and Contractual Obligations with Unconsolidated Entities
We do not have any commitments or contractual obligations arising from arrangements with unconsolidated entities that have
or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations,
liquidity, cash requirements or capital resources.
Capital Management
Maintaining a strong balance sheet that can support the business even in times of economic stress and market volatility is of
critical importance to our business strategy. A strong and robust capital position is essential to executing our investment
strategy. Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy
regardless of the market environment. Our capital policy defines the parameters and principles supporting a comprehensive
capital management practice.
The major risks impacting capital are liquidity and funding risk, investment/market risk, credit risk, counterparty risk,
operational risk and compliance, regulatory and legal risk. For further discussion of the risks we are subject to, please see Part I,
Item 1A. “Risk Factors” of this annual report on Form 10-K.
Capital requirements are based on maintaining levels above approved thresholds, ensuring the quality of our capital
appropriately reflects our asset mix, market and funding structure. In the event we fall short of our internal thresholds, we will
consider appropriate actions which may include asset sales, changes in asset mix, reductions in asset purchases or originations,
issuance of capital or other capital enhancing or risk reduction strategies.
Stockholders’ Equity
The following table provides a summary of total stockholders’ equity at December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Stockholders’ equity
(dollars in thousands)
6.95% Series F fixed-to-floating rate cumulative redeemable preferred stock
696,910
696,910
6.50% Series G fixed-to-floating rate cumulative redeemable preferred stock
411,335
411,335
6.75% Series I fixed-to-floating rate cumulative redeemable preferred stock
428,324
428,324
Common stock
5,784
5,001
Additional paid-in capital
25,257,716
23,672,391
Accumulated other comprehensive income (loss)
(1,017,682)
(1,335,400)
Accumulated deficit
(13,173,146)
(12,622,768)
Total stockholders’ equity
$
12,609,241
$
11,255,793
Capital Stock
Common Stock
In January 2022, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of
common stock through December 31, 2024 (the “Prior Common Stock Repurchase Program”). In January 2025, we announced
that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31,
2029 (the “Current Common Stock Repurchase Program”). The Current Common Stock Repurchase Program replaced the Prior
Common Stock Repurchase Program. During the years ended December 31, 2024 and 2023, no shares were repurchased under
the Prior Common Stock Repurchase Program.
Purchases made pursuant to the Current Common Stock Repurchase Program will be made in either the open market or in
privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing,
manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and
market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate us to acquire
any particular amount of common stock and the program may be suspended or discontinued at our discretion without prior
notice.
On August 6, 2020, we entered into separate Amended and Restated Distribution Agency Agreements (as amended by
Amendment No. 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No. 2 to
the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Prior Sales Agreements”)
with each of Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Keefe,
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
68
Bruyette & Woods, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo
Securities, LLC (collectively, the “Prior Sales Agents”). Pursuant to the Prior Sales Agreements, we offered and sold shares of
common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Prior Sales Agents
(the “Prior At-the-Market Sales Program”).
On September 20, 2024, we entered into new Distribution Agency Agreements (collectively, the “Sales Agreements”) with
each of Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Citizens JMP Securities, LLC, Goldman
Sachs & Co. LLC, J.P. Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., Morgan Stanley & Co., LLC, RBC Capital
Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), which terminated and
replaced the Prior Sales Agreements. Under the terms of the Sales Agreements, we may offer and sell shares of our common
stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Sales Agents (the “Current
At-the-Market Sales Program” and, together with the Prior At-the-Market Sales Program, the “at-the-market sales program”).
During the year ended December 31, 2024, under the at-the-market sales program, we issued 77.9 million shares for proceeds
of $1.6 billion, net of commissions and fees. During the year ended December 31, 2023, under the at-the-market sales program,
we issued 31.4 million shares for proceeds of $0.7 billion, net of commissions and fees.
Preferred Stock
On November 3, 2022, our Board approved a repurchase plan for all of our existing outstanding Preferred Stock (as defined
below, the “Prior Preferred Stock Repurchase Program”). Under the terms of the Prior Preferred Stock Repurchase Program, we
are authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000
shares of our 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the
“Series F Preferred Stock”), (ii) 17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock, par value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of our 6.75% Series I
Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and
together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of
the Preferred Stock that may be repurchased by us pursuant to the Prior Preferred Stock Repurchase Program, as of
November 3, 2022, was approximately $1.6 billion. The Prior Preferred Stock Repurchase Program became effective on
November 3, 2022, and expired on December 31, 2024. No shares were repurchased with respect to the Prior Preferred Stock
Repurchase Program during the year ended December 31, 2024.
On December 31, 2024, our Board approved a repurchase plan for all of our existing outstanding Preferred Stock (as defined
below, the “Current Preferred Stock Repurchase Program”). Under the terms of the Current Preferred Stock Repurchase
Program, we are authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i)
28,800,000 shares of our Series F Preferred Stock, (ii) 17,000,000 shares of our Series G Preferred Stock, and (iii) 17,700,000
shares of our Series I Preferred Stock. The aggregate liquidation value of the Preferred Stock that may be repurchased by us
pursuant to the Current Preferred Stock Repurchase Program, as of December 31, 2024, was approximately $1.6 billion. The
Current Preferred Stock Repurchase Program replaced the Prior Preferred Stock Repurchase Program. The Current Preferred
Stock Repurchase Program became effective on January 1, 2025, and will expire on December 31, 2029.
Purchases made pursuant to the Current Preferred Stock Repurchase Program will be made in either the open market or in
privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing,
manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and
market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate us to acquire
any particular amount of Preferred Stock and the program may be suspended or discontinued at our discretion without prior
notice.
Leverage and Capital
We believe that it is prudent to maintain conservative GAAP leverage ratios and economic leverage ratios as there may be
continued volatility in the mortgage and credit markets. Our capital policy governs our capital and leverage position including
setting limits. Based on the guidelines, we generally expect to maintain an economic leverage ratio of less than 10:1. Our actual
economic leverage ratio varies from time to time based upon various factors, including our management’s opinion of the level
of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-
collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and
international market conditions.
Our GAAP leverage ratio at December 31, 2024 and 2023 was 7.1:1 and 6.8:1, respectively. Our economic leverage ratio,
which is computed as the sum of Recourse Debt, cost basis of TBA and CMBX derivatives outstanding, and net forward
purchases (sales) of investments divided by total equity was 5.5:1 and 5.7:1, at December 31, 2024 and 2023, respectively. Our
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
69
GAAP capital ratio at December 31, 2024 and 2023 was 12.3% and 12.2%, respectively. Our economic capital ratio, which
represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives
and net of debt issued by securitization vehicles), was 14.6% and 14.0% at December 31, 2024 and 2023, respectively.
Economic leverage ratio and economic capital ratio are non-GAAP financial measures. Refer to the “Non-GAAP Financial
Measures” section for additional information, including reconciliations to their most directly comparable GAAP results.
Risk Management
We are subject to a variety of risks in the ordinary conduct of our business. The effective management of these risks is of
critical importance to the overall success of Annaly. The objective of our risk management framework is to identify, measure
and monitor these risks.
Our risk management framework is intended to facilitate a holistic, enterprise-wide view of risk. We believe we have built a
strong and collaborative risk management culture throughout Annaly focused on awareness which supports appropriate
understanding and management of our key risks. Each employee is accountable for identifying, monitoring and managing risk
within their area of responsibility.
Risk Appetite
We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to
achieve our business objectives, and reflects our risk management philosophy. We engage in risk activities based on our core
expertise that aim to enhance value for our stockholders. Our activities focus on income generation and capital preservation
through proactive portfolio management, supported by a conservative liquidity and leverage posture.
The risk appetite statement asserts the following key risk parameters to guide our investment management activities:
Risk Parameter
Description
Portfolio Composition We will maintain a portfolio comprised of target assets approved by our Board and in accordance with our
capital allocation policy.
Leverage
We generally expect to maintain an economic leverage ratio no greater than 10:1 considerate of our overall
capital allocation framework.
Liquidity Risk
We will seek to maintain an unencumbered asset portfolio sufficient to meet our liquidity needs under adverse
market conditions.
Interest Rate Risk
We will seek to manage interest rate risk to protect the portfolio from adverse rate movements utilizing
derivative instruments targeting both income and capital preservation.
Credit Risk
We will seek to manage credit risk by making investments which conform to our specific investment policy
parameters and optimize risk-adjusted returns.
Capital Preservation
We will seek to protect our capital base through disciplined risk management practices.
Operational Risk
We will seek to limit impacts to our business through disciplined operational risk management practices
addressing areas including but not limited to, management of key third party relationships (i.e. originators, sub-
servicers), human capital management, cybersecurity and technology related matters, business continuity and
financial reporting risk.
Compliance,
Regulatory and Legal
We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption
from registration under the Investment Company Act and the licenses and approvals of our regulated and
licensed subsidiaries.
Governance
Risk management begins with our Board, through the review and oversight of the risk management framework, and executive
management, through the ongoing formulation of risk management practices and related execution in managing risk. The Board
exercises its oversight of risk management primarily through the Risk Committee and Audit Committee with support from the
other Board Committees. The Risk Committee is responsible for oversight of our risk governance structure, risk management
(operational and market risk) and risk assessment guidelines and policies and our risk appetite. The Audit Committee is
responsible for oversight of the quality and integrity of our accounting, internal controls and financial reporting practices,
including independent auditor selection, evaluation and review, and oversight of the internal audit function. The Risk
Committee and the Audit Committee jointly oversee practices and policies related to cybersecurity and receive regular reports
from management throughout the year on cybersecurity and related risks. The Management Development and Compensation
Committee is responsible for oversight of risk related to our compensation policies and practices and other human capital
matters such as succession and culture. The Nominating/Corporate Governance Committee assists the Board in its oversight of
our corporate governance framework and the annual self-evaluation of the Board, and the Corporate Responsibility Committee
assists the Board in its oversight of any matters that may present reputational or ESG risk to us. The full Board has overall
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
70
responsibility for ESG oversight, and the Corporate Responsibility Committee meets jointly with other Committees from time
to time in order to review areas of shared responsibility.
Risk assessment and risk management are the responsibility of our management. A series of management committees has
oversight or decision-making responsibilities for risk management activities. Membership of these committees is reviewed
regularly to ensure the appropriate personnel are engaged in the risk management process. Three primary management
committees have been established to provide a comprehensive framework for risk management. The management committees
responsible for our risk management include the Enterprise Risk Committee (“ERC”), Asset / Liability Committee (“ALCO”)
and the Financial Reporting and Disclosure Committee (“FRDC”). Each of these committees reports to our management
Operating Committee, which is responsible for oversight and management of our operations, including oversight and approval
authority over all aspects of our enterprise risk management.
Audit Services is an independent function with reporting lines to the Audit Committee. Audit Services is responsible for
performing our internal audit activities, which includes independently assessing and validating key controls within the risk
management framework.
Our compliance group is responsible for oversight of our regulatory compliance. Our Chief Compliance Officer has reporting
lines to the Audit Committee.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
71
Description of Risks
We are subject to a variety of risks due to the business we operate. Risk categories are an important component of a robust
enterprise-wide risk management framework.
We have identified the following primary categories that we utilize to identify, assess, measure and monitor risk.
Risk
Description
Liquidity and Funding Risk
Risk to earnings, capital or business resulting from our inability to meet our obligations
when they come due without incurring unacceptable losses because of inability to
liquidate assets or obtain adequate funding.
Investment/Market Risk
Risk to earnings, capital or business resulting in the decline in value of our assets or an
increase in the costs of financing caused by changes in market variables, such as interest
rates, which affect the values of investment securities and other investment instruments.
Credit Risk
Risk to earnings, capital or business resulting from an obligor’s failure to meet the
terms of any contract or otherwise failure to perform as agreed. This risk is present in
lending and investing activities.
Counterparty Risk
Risk to earnings, capital or business resulting from a counterparty’s failure to meet the
terms of any contract or otherwise failure to perform as agreed. This risk is present in
funding, hedging and investing activities.
Operational Risk
Risk to earnings, capital, reputation or business arising from inadequate or failed
internal processes or systems (including business continuity planning), human factors or
external events. This risk also applies to our use of proprietary and third party models,
software vendors and data providers, and oversight of third party service providers such
as sub-servicers, due diligence firms etc.
Compliance, Regulatory and Legal Risk
Risk to earnings, capital, reputation or conduct of business arising from violations of, or
nonconformance with internal and external applicable rules and regulations, losses
resulting from lawsuits or adverse judgments, or from changes in the regulatory
environment that may impact our business model.
Liquidity and Funding Risk Management
Our liquidity and funding risk management strategy is designed to ensure the availability of sufficient resources to support our
business and meet our financial obligations under both normal and adverse market and business environments. Our liquidity
and funding risk management practices consist of the following primary elements:
Element
Description
Funding
Availability of diverse and stable sources of funds.
Excess Liquidity
Excess liquidity primarily in the form of unencumbered assets and cash.
Maturity Profile
Diversity and tenor of liabilities and modest use of leverage.
Stress Testing
Scenario modeling to measure the resiliency of our liquidity position.
Liquidity Management Policies
Comprehensive policies including monitoring, risk limits and an escalation protocol.
Funding
Our primary financing sources are repurchase agreements provided through counterparty arrangements and through Arcola,
other secured financing, debt issued by securitization vehicles, mortgages, credit facilities, note sales and various forms of
equity. We maintain excess liquidity by holding unencumbered liquid assets that could be either used to collateralize additional
borrowings or sold.
We seek to conservatively manage our repurchase agreement funding position through a variety of methods including diversity,
breadth and depth of counterparties and maintaining a staggered maturity profile.
Arcola provides direct access to third party funding as a FINRA member broker-dealer. Arcola borrows funds through the
General Collateral Finance Repo service offered by the FICC, with FICC acting as the central counterparty. In addition, Arcola
may borrow funds through direct repurchase agreements.
To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements. At December 31, 2024 and
December 31, 2023, the weighted average days to maturity was 32 days and 44 days, respectively.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
72
Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on
the same business day that a margin call is made. Should prepayment speeds on the mortgages underlying our Agency and
Residential mortgage-backed securities and/or market interest rates or other factors move suddenly and cause declines in the
market value of assets posted as collateral, resulting margin calls may cause an adverse change in our liquidity position. We
have continued to diversify our financing profile adding new non-mark-to-market facilities and financing options under existing
facilities for our Residential Credit operating segment.
At December 31, 2024, we had total financial assets and cash pledged against existing liabilities of $70.5 billion. The weighted
average haircut was approximately 3% on repurchase agreements. The quality and character of the Residential Securities that
we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at December 31,
2024 compared to the same period in 2023, and our counterparties did not materially alter any requirements, including required
haircuts, related to the collateral we pledge under repurchase agreements and interest rate swaps during the year ended
December 31, 2024.
The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement
balances outstanding for the periods presented:
Repurchase Agreements
Reverse Repurchase Agreements
Average Daily
Amount
Outstanding
Ending Amount
Outstanding
Average Daily
Amount
Outstanding
Ending Amount
Outstanding
For the three months ended
(dollars in thousands)
December 31, 2024
$
68,092,016
$
65,688,923
$
2,778,970
$
—
September 30, 2024
67,092,629
64,310,276
3,041,120
—
June 30, 2024
63,043,218
60,787,994
2,322,479
—
March 31, 2024
64,027,388
58,975,232
2,323,485
—
December 31, 2023
61,924,576
62,201,543
1,340,204
—
September 30, 2023
66,020,036
64,693,821
257,097
—
June 30, 2023
64,591,463
61,637,600
600,968
—
March 31, 2023
60,477,833
60,993,018
371,429
—
December 31, 2022
59,946,810
59,512,597
102,025
—
Our committed facility warehouse lines provide financing for our MSR portfolio for liquidity purposes. We maintain a
conservative approach to these facilities, generally over-collateralizing the lines against margin calls.
The following table provides information on our repurchase agreements and other secured financing by maturity date at
December 31, 2024. The weighted average remaining maturity on our repurchase agreements and other secured financing was
33 days at December 31, 2024:
December 31, 2024
Principal
Balance
Weighted
Average Rate
% of Total
(dollars in thousands)
1 day
$
—
—%
—%
2 to 29 days
27,323,365
4.85%
41.1%
30 to 59 days
35,770,924
4.63%
53.9%
60 to 89 days
1,285,522
5.08%
1.9%
90 to 119 days
62,468
5.67%
0.1%
Over 119 days (1)
1,996,644
6.57%
3.0%
Total
$
66,438,923
4.79%
100.0%
(1) Less than 1% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.
We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by
our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization
program. In order to increase financing optionality for our Onslow Bay platform we closed new warehouse facilities and
upsized existing warehouse facilities. These included expanded product offerings for residential whole loans, including a
component not subject to margin calls, and a two-year facility for OBX retained securities not subject to margin calls.
The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at
December 31, 2024:
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
73
Weighted Average Rate
Principal
Balance
As of Period End
For the
Quarter
Weighted Average
Days to Maturity (1)
(dollars in thousands)
Repurchase agreements
$
65,688,923
4.76%
4.93%
32
Other secured financing
750,000
7.21%
7.37%
310
Debt issued by securitization vehicles (2)
20,468,421
5.34%
5.16%
12,962
Participations issued (2)
1,134,995
6.83%
6.53%
10,889
Total indebtedness
$
88,042,339
(1) Determined based on estimated weighted-average lives of the underlying debt instruments.
(2) Non-recourse to Annaly.
Excess Liquidity
Our primary source of liquidity is the availability of unencumbered assets which may be provided as collateral to support
additional funding needs. We target minimum thresholds of available, unencumbered assets to maintain excess liquidity. The
following table illustrates our asset portfolio available to support potential collateral obligations and funding needs.
Assets are considered encumbered if pledged as collateral against an existing liability, and therefore are no longer available to
support additional funding. An asset is considered unencumbered if it has not been pledged or securitized. The following table
also provides the carrying amount of our encumbered and unencumbered financial assets at December 31, 2024:
Encumbered Assets
Unencumbered Assets
Total
Financial assets
(dollars in thousands)
Cash and cash equivalents
$
1,202,880
$
285,147
$
1,488,027
Investments, at carrying value (1)
Agency mortgage-backed securities
65,768,342
3,634,123
69,402,465
Credit risk transfer securities
742,979
11,936
754,915
Non-agency mortgage-backed securities
1,106,463
386,723
1,493,186
Commercial mortgage-backed securities
74,278
—
74,278
Residential mortgage loans (2)
24,492,582
1,027,508
25,520,090
MSR
2,460,252
448,882
2,909,134
Other assets (3)
—
53,696
53,696
Total financial assets
$
95,847,776
$
5,848,015
$
101,695,791
(1) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported in the Consolidated Statements
of Financial Condition.
(2) Includes assets transferred or pledged to securitization vehicles.
(3) Includes commercial real estate investments and interests in certain joint ventures.
We maintain liquid assets in order to satisfy our current and future obligations in normal and stressed operating environments.
These are held as the primary means of liquidity risk mitigation. The composition of our liquid assets is also considered and is
subject to certain parameters. The composition is monitored for concentration risk, including in respect of our deposits of our
cash and cash equivalents, and asset type. We believe the assets we consider liquid can be readily converted into cash, through
liquidation or by being used as collateral in financing arrangements (including as additional collateral to support existing
financial arrangements). Our balance sheet also generates liquidity on an on-going basis through mortgage principal and interest
repayments and net earnings held prior to payment of dividends. The following table presents our liquid assets as a percentage
of total assets at December 31, 2024:
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
74
Carrying Value (1)
Liquid assets
(dollars in thousands)
Cash and cash equivalents
$
1,488,027
Residential Securities (2)
71,650,495
Commercial mortgage-backed securities
74,278
Residential mortgage loans (3)
3,546,902
Total liquid assets
$
76,759,702
Percentage of liquid assets to carrying amount of encumbered and unencumbered financial assets (4)
96.30%
(1) Carrying value approximates the market value of assets. The assets listed in this table include $70.5 billion of assets that have been
pledged as collateral against existing liabilities at December 31, 2024. Please refer to the Encumbered and Unencumbered Assets table
for related information.
(2) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported in the
Consolidated Statements of Financial Condition.
(3) Excludes securitized residential mortgage loans transferred or pledged to consolidated VIEs carried at fair value of $22.0 billion.
(4) Denominator is computed based on the carrying amount of encumbered and unencumbered financial assets, excluding assets transferred
or pledged to securitization vehicles, of $22.0 billion.
Maturity Profile
We consider the profile of our assets, liabilities and derivatives when managing both liquidity risk as well as investment/market
risk employing a measurement of both the maturity gap and interest rate sensitivity gap. We determine the amount of liquid
assets that are required to be held by monitoring several liquidity metrics. We utilize several modeling techniques to analyze
our current and potential obligations including the expected cash flows from our assets, liabilities and derivatives. The
following table illustrates the expected final maturities and cash flows of our assets, liabilities and derivatives. The table is
based on a static portfolio and assumes no reinvestment of asset cash flows and no future liabilities are entered into. In
assessing the maturity of our assets, liabilities and off-balance sheet obligations, we use the stated maturities, or our prepayment
expectations for assets and liabilities that exhibit prepayment characteristics. Cash and cash equivalents are included in the
‘Less than 3 Months’ maturity bucket, as they are typically held for a short period of time.
With respect to each maturity bucket, our maturity gap is considered negative when the amount of maturing liabilities exceeds
the amount of maturing assets. A negative gap increases our liquidity risk as we must enter into future liabilities.
Our interest rate sensitivity gap is the difference between interest earning assets and interest bearing liabilities maturing or re-
pricing within a given time period. Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our
interest rate swaps. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds
interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest
income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest
income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to
changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively
even if assets and liabilities were perfectly matched in each maturity category. The amount of assets and liabilities utilized to
compute our interest rate sensitivity gap was determined in accordance with the contractual terms of the assets and liabilities,
except that adjustable-rate loans and securities are included in the period in which their interest rates are first scheduled to
adjust and not in the period in which they mature. The effects of interest rate swaps, whereby we generally pay a fixed rate and
receive a floating rate and effectively lock in our financing costs for a longer term, are also reflected in our interest rate
sensitivity gap.
The interest rate sensitivity of our assets and liabilities in the following table at December 31, 2024 could vary substantially
based on actual prepayment experience.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
75
Less than 3
Months
3-12
Months
More than 1
Year to 3
Years
3 Years and
Over
Total
Financial assets
(dollars in thousands)
Cash and cash equivalents
$
1,488,027
$
—
$
—
$
—
$
1,488,027
Agency mortgage-backed securities (principal)
8
106
21,151
68,600,682
68,621,947
Residential credit risk transfer securities (principal)
—
4,996
5,570
696,603
707,169
Non-agency mortgage-backed securities (principal)
169,259
233,332
388,603
663,249
1,454,443
Commercial mortgage-backed securities (principal)
44,151
30,000
—
—
74,151
Total securities
213,418
268,434
415,324
69,960,534
70,857,710
Residential mortgage loans (principal)
—
—
—
3,485,717
3,485,717
Total loans
—
—
—
3,485,717
3,485,717
Assets transferred or pledged to securitization vehicles
(principal)
—
—
—
22,812,008
22,812,008
Total financial assets - maturity
1,701,445
268,434
415,324
96,258,259
98,643,462
Effect of utilizing reset dates (1)
23,366,941
735,144
415,423
(24,517,508)
—
Total financial assets - interest rate sensitive
$ 25,068,386
$
1,003,578
$
830,747
$
71,740,751
$
98,643,462
Financial liabilities
Repurchase agreements
$ 64,154,811
$
1,202,072
$
332,040
$
—
$
65,688,923
Debt issued by securitization vehicles (principal)
—
—
—
20,468,421
20,468,421
Participations issued (principal)
—
—
—
1,134,995
1,134,995
U.S. Treasury securities sold, not yet purchased
2,470,629
—
—
—
2,470,629
Total financial liabilities - maturity
66,625,440
1,202,072
332,040
21,603,416
89,762,968
Effect of utilizing reset dates (1)(2)
(58,603,814)
10,605,667
13,634,875
34,363,272
—
Total financial liabilities - interest rate sensitive
$
8,021,626
$ 11,807,739
$
13,966,915
$
55,966,688
$
89,762,968
Maturity gap
$ (64,923,995) $
(933,638) $
83,284
$
74,654,843
$
8,880,494
Cumulative maturity gap
$ (64,923,995) $ (65,857,633) $ (65,774,349) $
8,880,494
Interest rate sensitivity gap
$ 17,046,760
$ (10,804,161) $ (13,136,168) $
15,774,063
$
8,880,494
Cumulative rate sensitivity gap
$ 17,046,760
$
6,242,599
$
(6,893,569) $
8,880,494
(1) Maturity gap utilizes stated maturities, or prepayment expectations for assets that exhibit prepayment characteristics, while interest rate sensitivity gap
utilizes reset dates, if applicable.
(2) Includes effect of interest rate swaps.
The methodologies we employ for evaluating interest rate risk include an analysis of our interest rate “gap,” measurement of the
duration and convexity of our portfolio and sensitivities to interest rates and spreads.
Stress Testing
We utilize liquidity stress testing to ensure we have sufficient liquidity under a variety of scenarios and stresses. These stress
tests assist with the management of our pool of liquid assets and influence our current and future funding plans. The stresses
applied include market-wide and firm-specific stresses.
Liquidity Management Policies
We utilize a comprehensive liquidity policy structure to inform our liquidity risk management practices including monitoring
and measurement, along with well-defined key risk indicators. Both quantitative and qualitative targets are utilized to measure
the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as
well as the sustainability of the funding composition under stress conditions.
We also monitor early warning metrics designed to measure the quality and depth of liquidity sources based upon both
company-specific and market conditions. The metrics assist in assessing our liquidity conditions and are integrated into our
escalation protocol.
Investment/Market Risk Management
One of the primary risks we are subject to is investment/market risk. Changes in the level of interest rates can affect our net
interest income, which is the difference between the income we earn on our interest earning assets and the interest expense
incurred from interest bearing liabilities and derivatives. Changes in the level of interest rates and spreads can also affect the
value of our assets and potential realization of gains or losses from the sale of these assets. We may utilize a variety of financial
instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the adverse effects of
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
76
interest rates on our results. In the case of interest rate swaps, we utilize contracts linked to SOFR but may also enter into
interest rate swaps where the floating leg is linked to the overnight index swap rate or another index. In addition, we may use
MAC interest rate swaps in which we may receive or make a payment at the time of entering such interest rate swap to
compensate for the off-market nature of such interest rate swap. MAC interest rate swaps offer price transparency, flexibility
and more efficient portfolio administration through compression which is the process of reducing the number of unique interest
rate swap contracts and replacing them with fewer contracts containing market defined terms. Our portfolio and the value of our
portfolio, including derivatives, may be adversely affected as a result of changing interest rates and spreads.
We simulate a wide variety of interest rate scenarios in evaluating our risk. Scenarios are run to capture our sensitivity to
changes in interest rates, spreads and the shape of the yield curve. We also consider the assumptions affecting our analysis such
as those related to prepayments. In addition to predefined interest rate scenarios, we utilize Value-at-Risk measures to estimate
potential losses in the portfolio over various time horizons utilizing various confidence levels. The following tables estimate the
potential changes in economic net interest income over a twelve month period and the immediate effect on our portfolio market
value (inclusive of derivative instruments), should interest rates instantaneously increase or decrease by 25, 50 or 75 basis
points, and the effect of portfolio market value if mortgage option-adjusted spreads instantaneously increase or decrease by 5,
15 or 25 basis points (assuming shocks are parallel and instantaneous). All changes to income and portfolio market value are
measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario.
The net interest income simulations incorporate the interest expense effect of rate resets on liabilities and derivatives as well as
the amortization expense and reinvestment of principal based on the prepayments on our securities, which varies based on the
level of rates. The results assume no management actions in response to the rate or spread changes. The following table presents
estimates at December 31, 2024. Actual results could differ materially from these estimates.
Change in Interest Rate (1)
Estimated Percentage Change in
Portfolio Value (2)
Estimated Change as a
% on NAV (2)(3)
Projected Percentage
Change in Economic Net
Interest Income (4)
-75 Basis points
0.1%
0.5%
0.1%
-50 Basis points
0.1%
1.0%
0.3%
-25 Basis points
0.1%
0.8%
0.3%
+25 Basis points
(0.2%)
(1.3%)
(0.8%)
+50 Basis points
(0.4%)
(2.9%)
(2.1%)
+75 Basis points
(0.7%)
(4.8%)
(3.6%)
MBS Spread Shock (1)
Estimated Change in
Portfolio Market Value (2)
Estimated Change as a %
on NAV (2)(3)
-25 Basis points
1.3%
9.8%
-15 Basis points
0.8%
5.9%
-5 Basis points
0.3%
1.9%
+5 Basis points
(0.3%)
(1.9%)
+15 Basis points
(0.8%)
(5.8%)
+25 Basis points
(1.3%)
(9.6%)
(1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with inputs from our internal investment
professionals. Actual results could differ materially from these estimates.
(2) Scenarios include securities, residential mortgage loans, MSR and derivative instruments.
(3) NAV represents book value of equity.
(4) Scenarios include securities, residential mortgage loans, repurchase agreements, other secured financing and interest rate swaps. Economic
net interest income includes the net interest component of interest rate swaps and net interest on initial margin related to interest rate swaps,
which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss).
Credit Risk Management
Key risk parameters have been established to specify our credit risk appetite. We seek to manage credit risk by making
investments which conform to the firm’s specific investment policy parameters and optimize risk-return attributes.
While we do not expect to encounter credit risk in our Agency mortgage-backed securities, we face credit risk on the non-
Agency mortgage-backed securities and CRT securities in our portfolio. In addition, we are also exposed to credit risk on
residential mortgage loans and commercial real estate investments. MSR values may also be impacted through reduced
servicing fees and higher costs to service the underlying mortgage loans due to borrower performance. Generally, we are
subject to risk of loss if an issuer or borrower fails to perform its contractual obligations. We have established policies and
procedures for mitigating credit risk, including establishing and reviewing limits for credit exposure. In the case of residential
mortgage loans and MSR, we may engage a third party to perform due diligence on a sample of loans that we believe
sufficiently represents the entire pool. Once an investment is made, our ongoing surveillance process includes regular reviews,
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
77
analysis and oversight of investments by our investment personnel and appropriate committee. We review credit and other risks
of loss associated with each investment. Our management monitors the overall portfolio risk and determines estimates of
provision for loss. Additionally, ALCO has oversight of our credit risk exposure.
Our portfolio composition, based on balance sheet values, at December 31, 2024 and 2023 was as follows:
December 31, 2024
December 31, 2023
Category
Agency mortgage-backed securities
68.6%
75.9%
Credit risk transfer securities
0.8%
1.1%
Non-agency mortgage-backed securities
1.5%
2.4%
Residential mortgage loans (1)
26.0%
17.9%
Commercial mortgage-backed securities
0.1%
0.3%
Mortgage servicing rights
3.0%
2.4%
(1) Includes assets transferred or pledged to securitization vehicles.
Counterparty Risk Management
Our use of repurchase and derivative agreements and trading activities create exposure to counterparty risk relating to potential
losses that could be recognized if the counterparties to these agreements fail to perform their obligations under the contracts. In
the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral. A significant portion
of our investments are financed with repurchase agreements by pledging our Residential Securities as collateral to the
applicable lender. The collateral we pledge generally exceeds the amount of the borrowings under each agreement. If the
counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged asset, we are at
risk of losing the over-collateralization or haircut. The amount of this exposure is the difference between the amount loaned to
us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest
receivable on such collateral.
We also use interest rate swaps and other derivatives to manage interest rate risk. Under these agreements, we pledge securities
and cash as collateral or settle variation margin payments as part of a margin arrangement.
If a counterparty were to default on its obligations, we would be exposed to a loss to a derivative counterparty to the extent that
the amount of our securities or cash pledged exceeded the unrealized loss on the associated derivative and we were not able to
recover the excess collateral. Additionally, we would be exposed to a loss to a derivative counterparty to the extent that our
unrealized gains on derivative instruments exceeded the amount of the counterparty’s securities or cash pledged to us.
We monitor our exposure to counterparties across several dimensions including by type of arrangement, collateral type,
counterparty type, ratings and geography. Additionally, ALCO has oversight of our counterparty exposure.
The following table summarizes our exposure to counterparties by geography at December 31, 2024:
Number of
Counterparties
Secured Financing (1)
Interest Rate Swaps
at Fair Value
Exposure (2)
Geography
(dollars in thousands)
North America
22
$
50,510,543
$
11,820
$
4,009,456
Europe
9
11,529,286
2,194
829,879
Asia (non-Japan)
1
501,344
—
16,409
Japan
4
3,897,750
—
415,462
Total
36
$
66,438,923
$
14,014
$
5,271,206
(1) Includes repurchase agreements and other secured financing.
(2) Represents the amount of cash and/or securities pledged as collateral to each counterparty less the aggregate of repurchase
agreement and other secured financing and derivatives for each counterparty.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
78
Operational Risk Management
We are subject to operational risk in each of our business and support functions. Operational risk may arise from internal or
external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other
external events. We manage operational risk through a variety of tools including processes, policies and procedures that cover
topics such as business continuity, personal conduct, cybersecurity and vendor management. Other tools include Risk and
Control Self Assessment (“RCSA”) testing, including disaster recovery/testing; systems controls, including access controls;
training, including phishing exercises and cybersecurity awareness training; and monitoring, which includes the use of key risk
indicators. Our Operational Risk Management team conducts a disaster recovery exercise on an annual basis and periodically
conducts other operational risk tabletop exercises. Employee-level lines of defense against operational risk include proper
segregation of incompatible duties, activity-level internal controls over financial reporting, the empowerment of business units
to identify and mitigate operational risk sources, testing by our internal audit staff, and our overall governance framework.
Operational Risk Management responsibilities are overseen by the ERC. The ERC is responsible for supporting the Operating
Committee in the implementation, ongoing monitoring, and evaluation of the effectiveness of the enterprise-wide risk
management framework. This oversight authority includes review of the strategies, processes, policies, and practices
established by management to identify, assess, measure, and manage enterprise-wide risk.
Cybersecurity is part of our enterprise-wide risk management framework. Processes for assessing, identifying and managing
cybersecurity risks include cybersecurity risk assessments, use of key risk indicators, vendor cybersecurity risk management,
employee training, including phishing exercises and cybersecurity awareness training, penetration testing, evaluation of
cybersecurity insurance and periodic engagements by our internal audit department, which determines whether our
cybersecurity program and information security practices align with relevant parts of the National Institute of Standards and
Technology (“NIST”) framework. We periodically engage penetration testing companies and law firms to assist in these
processes. When we do so, we hire reputable companies, limit their access to only information necessary for the specific
purpose and maintain security controls around confidential information, including personal information. We also maintain a
Cybersecurity Incident Response Plan (“Response Plan”) with processes to identify, contain, mitigate and escalate
cybersecurity incidents, utilizing cross-functional expertise and external resources as needed. We conduct periodic tabletop
exercises to test our Response Plan and our reaction to various business disruption events, and the results of these tabletop
exercises are reported to the Cybersecurity Committee and the ERC.
We also have processes in place to oversee and identify material risks from cybersecurity threats associated with our use of
third party service providers upon which we depend on to perform various business processes related to our operations,
including mortgage loan servicers and sub-servicers. Our vendor management and IT policies establish procedures for
engaging, onboarding and monitoring the performance of third party vendors. For mortgage loan servicers and sub-servicers,
these procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and
regulations, cybersecurity and business continuity programs and security of personal information. We also have processes to
evaluate and classify cybersecurity risk related to sensitive data held by key third party service providers on their systems.
The Cybersecurity Committee has primary responsibility for these processes to manage cybersecurity risks, under the oversight
of the ERC. Daily monitoring of cybersecurity defenses is performed by the IT Infrastructure Team and any issues are escalated
to the Cybersecurity Committee as needed. The Cybersecurity Committee regularly meets to discuss both routine oversight of
cybersecurity processes, policies and procedures and management of any cyber-specific events, including escalation to the
ERC, the executive leadership team and/or the Board, as appropriate.
The Cybersecurity Committee includes representatives from Operational Risk Management, Information Technology, Legal,
Mortgage Operations and Internal Controls. Certain members of the Cybersecurity Committee have relevant qualifications such
as extensive work experience implementing data security measures, developing cybersecurity policies and procedures and
assessing, managing and reporting cybersecurity risk. Members also participate in cybersecurity-related professional
organizations that discuss industry threats, challenges and solutions to cybersecurity issues. Our Head of IT Infrastructure has
completed the “Cybersecurity: Managing Risk in the Information Age” certificate program from Harvard University.
The Cybersecurity Committee regularly discusses cybersecurity risk management and best practices with the ERC and with the
Audit and Risk Committees of our Board. The Audit and Risk Committees jointly oversee processes, practices and policies
related to cybersecurity and receive joint and individual presentations from management and external experts on cyber
technology-related risks. Two members of our Board have completed the Carnegie Mellon/NACD Cyber-Risk Oversight
Program and earned the CERT Certificate in Cybersecurity Oversight and one member of our Board has completed the NACD
Master Class: Cyber-Risk Oversight Program.
To date, we have not detected any risks from cybersecurity threats that have materially affected us. However, even though we
take steps to employ reasonable cybersecurity defenses, not every cybersecurity incident can be prevented or detected. We also
may be held responsible for cybersecurity threats affecting our third party service providers, including servicers and sub-
servicers, some of whom have reported breaches in the past. Therefore, while we are not aware of any cybersecurity threats or
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
79
incidents that are reasonably likely to have a material effect on our business strategy, results of operations or financial
condition, the likelihood and severity of such risks are difficult to predict. For further discussion, please see the risk factors
titled “We are highly dependent on information systems and networks, many of which are operated by third parties” and
“Cyberattacks or other information security breaches of our Company's, service providers' or counterparties' systems or
networks affect our business, reputation and financial condition” in Part I, Item 1A. “Risk Factors” in this Annual Report on
Form 10-K.
Compliance, Regulatory and Legal Risk Management
Our business is organized as a REIT, and we seek to continue to meet the requirements for taxation as a REIT. The
determination that we are a REIT requires an analysis of various factual matters and circumstances. Accordingly, we closely
monitor our REIT status within our risk management program. We also regularly assess our risk management in respect of our
regulated and licensed subsidiaries, which include our registered broker-dealer subsidiary Arcola, our subsidiary that is
registered with the SEC as an investment adviser under the Investment Advisers Act and our subsidiary that operates as a
licensed mortgage aggregator and master servicer.
The financial services industry is highly regulated and receives significant attention from regulators, which may impact both
our company and our business strategy. Our investments in residential whole loans and MSR require us to comply with
applicable state and federal laws and regulations and maintain appropriate governmental licenses, approvals and exemptions.
We proactively monitor the potential impact regulation may have both directly and indirectly on us. We maintain a process to
actively monitor both actual and potential legal action that may affect us. Our risk management framework is designed to
identify, measure and monitor these risks under oversight of the ERC.
We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act, and we
seek to continue to meet the requirements for this exemption from registration. The determination that we qualify for this
exemption from registration depends on various factual matters and circumstances. Accordingly, in conjunction with our legal
department, we closely monitor our compliance with Section 3(c)(5)(C) of the Investment Company Act within our risk
management program. Compliance with Section 3(c)(5)(C) of the Investment Company Act is monitored by the FRDC.
Critical Accounting Estimates
The preparation of our consolidated financial statement in accordance with generally accepted accounting principles in the
United States requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results may differ materially from these estimates and changes in assumptions could have a
significant effect on the consolidated financial statements. Our critical accounting policies that require us to make significant
judgments or estimates are described below. For more information on these critical accounting policies and other significant
accounting policies, refer to the Note titled “Significant Accounting Policies” in the Notes to the Consolidated Financial
Statements included in Item 15. “Exhibits, Financial Statement Schedules.”
Valuation of Financial Instruments
Residential Securities
Description: We carry Residential Securities at estimated fair value. There is an active market for our Agency mortgage-backed
securities, CRT securities and non-Agency mortgage-backed securities.
Judgments and Uncertainties: Since we primarily invest in securities that can be valued using quoted prices for actively traded
assets, there is a high degree of observable inputs and less subjectivity in measuring fair value. Internal fair values are
determined using quoted prices from the TBA securities market, the Treasury curve and the underlying characteristics of the
individual securities, which may include coupon, periodic and life caps, reset dates and the expected life of the security. While
prepayment rates may be difficult to predict and require estimation and judgment in the valuation of Agency mortgage-backed
securities, we use several third party models to validate prepayment speeds used in fair value measurements of Residential
Securities. All internal fair values are compared to external pricing sources and/or dealer quotes to determine reasonableness.
Additionally, securities used as collateral for repurchase agreements are priced daily by counterparties to ensure sufficient
collateralization, providing additional verification of our internal pricing.
Sensitivity of Estimates to Change: Changes in underlying assumptions used in estimating fair value impact the carrying value
of the Residential Securities as well as their yield. For example, an increase in CPR would decrease the carrying value and yield
of our Agency mortgage-backed securities. Our valuations are most sensitive to changes in interest rate, which also impacts
prepayment speeds. Refer to the Experienced and Projected Long-Term CPR, Financial Condition – Residential Securities and
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
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the interest rate sensitivity and interest rate and MBS spread shock analysis and discussions within this Item 7 for further
information.
Residential Mortgage Loans
Description: We elected to account for Residential Mortgage Loans at fair value. There is an active market for the residential
whole loans in which we invest.
Judgments and Uncertainties: Since we primarily invest in residential loans that can be valued using actively quoted prices for
similar assets, there are observable inputs in measuring fair value. Internal fair values are determined using quoted prices for
similar market transactions, the swap curve and the underlying characteristics of the individual loans, which may include loan
term, coupon, and reset dates. While prepayment rates may be difficult to predict and are a significant estimate requiring
judgment in the valuation of residential whole loans, we validate prepayment speeds against those provided by independent
pricing analytic providers specializing in residential mortgage loans. Internal fair values are generally compared to external
pricing sources to determine reasonableness.
Sensitivity of Estimates to Change: Changes to model assumptions, including prepayment speeds may significantly impact the
fair value estimate of residential mortgage loans as well as unrealized gains and losses and yield on these assets. Our valuations
are most sensitive to changes in interest rate, which also impacts prepayment speeds. Refer to the interest rate sensitivity and
interest rate shock analysis and discussions within this Item 7 for further information.
MSR
Description: We elected to account for MSR at fair value. The market for MSR is considered less active and transparent
compared to securities. As such fair value estimates for our investment in MSR are obtained from models, which use significant
unobservable inputs in their valuations.
Judgments and Uncertainties: These valuations primarily utilize discounted cash flow models that incorporate unobservable
market data inputs including prepayment rates, delinquency levels, costs to service and discount rates. Model valuations are
then compared to valuations obtained from third party pricing providers. Management reviews the valuations received from
third party pricing providers and uses them as a point of comparison to modeled values. The valuation of MSR requires
significant judgment by management and the third party pricing providers.
Sensitivity of Estimates to Change: Changes in the underlying assumptions used to estimate the fair value of MSR impact the
carrying value as well as the related unrealized gains and losses recognized. For further discussion of the sensitivity of the
model inputs refer to the Note titled “Fair Value Measurements” in the Notes to the Consolidated Financial Statements included
in Item 15. “Exhibits, Financial Statement Schedules.”
Interest Rate Swaps
Description: We are required to account for derivative assets and liabilities at fair value, which may or may not be cleared
through a derivative clearing organization. We value our cleared interest rate swaps using the prices provided by the derivatives
clearing organization. We value uncleared derivatives using internal models with prices compared to counterparty marks.
Judgments and Uncertainties: We use the overnight indexed swap (“OIS”) curve, the SOFR curve, or SOFR forward rates as an
input to value substantially all of our uncleared interest rate swaps. Consistent with market practice, we exchange collateral
(also called margin) based on the fair values of our interest rate swaps. Through this margining process, we may be able to
compare our recorded fair value with the fair value calculated by the counterparty or derivatives clearing organization,
providing additional verification of our recorded fair value of the uncleared interest rate swaps.
Sensitivity of Estimates to Change: Changes in the OIS curve will impact the carrying value of our interest rate swap assets and
liabilities. Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds. See the interest
rate sensitivity and interest rate shock analysis and discussions within this Item 7 for further information.
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Item 7. Management’s Discussion and Analysis
81
Revenue Recognition
Description: Interest income from coupon payments is accrued based on the outstanding principal amounts of the Residential
Securities and their contractual terms. Premiums and discounts associated with the purchase of the Residential Securities are
amortized or accreted into interest income over the projected lives of the securities using the interest method. Gains or losses on
sales of Residential Securities are recorded on trade date based on the specific identification method.
Judgments and Uncertainties: To aid in determining projected lives of the securities, we use third party model and market
information to project prepayment speeds. Our prepayment speed projections incorporate underlying loan characteristics (i.e.,
coupon, term, original loan size, original loan-to-value ratio, etc.) and market data, including interest rate and home price index
forecasts and expert judgment. Prepayment speeds vary according to the type of investment, conditions in the financial markets
and other factors and cannot be predicted with any certainty.
Sensitivity of Estimates to Change: Changes to model assumptions, including interest rates and other market data, as well as
periodic revisions to the model will cause changes in the results. Adjustments are made for actual prepayment activity as it
relates to calculating the effective yield. The sensitivity of changes in interest rates to our economic net interest income is
included in the interest rate shock analysis and discussions within this Item 7 for further information.
Consolidation of Variable Interest Entities
Description: We are required to determine if it is required to consolidate entities in which it holds a variable interest.
Judgments and Uncertainties: Determining whether an entity has a controlling financial interest in a VIE requires significant
judgment related to assessing the purpose and design of the VIE and determination of the activities that most significantly
impact its economic performance. We must also identify explicit and implicit variable interests in the entity and consider our
involvement in both the design of the VIE and its ongoing activities. To determine whether consolidation of the VIE is required,
we must apply judgment to assess whether we have the power to direct the most significant activities of the VIE and whether
we have either the rights to receive benefits or the obligation to absorb losses that could be potentially significant to the VIE.
Use of Estimates
The use of GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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Glossary of Terms
A
Adjustable-Rate Loan / Security
A loan / security on which interest rates are adjusted at
regular intervals according to predetermined criteria. The
adjustable interest rate is tied to an objective, published
interest rate index.
Agency
Refers to a federally chartered corporation, such as the
Federal National Mortgage Association, or the Federal
Home Loan Mortgage Corporation, or an agency of the
U.S. Government, such as the Government National
Mortgage Association.
Agency Mortgage-Backed Securities
Refers to residential mortgage-backed securities that are
issued or guaranteed by an Agency.
Amortization
Liquidation of a debt through installment payments.
Amortization also refers to the process of systematically
reducing a recognized asset or liability (e.g., a purchase
premium or discount for a debt security) with an offset to
earnings.
Average GAAP Cost of Interest Bearing Liabilities and
Average Economic Cost of Interest Bearing Liabilities
Average GAAP cost of interest bearing liabilities
represents annualized interest expense divided by average
interest bearing liabilities. Average interest bearing
liabilities is a non-GAAP financial measure that reflects
the average balances during the period. Average economic
cost of interest bearing liabilities represents annualized
economic interest expense divided by average interest
bearing liabilities.
Average Life
On a mortgage-backed security, the average time to receipt
of each dollar of principal, weighted by the amount of each
principal prepayment, based on prepayment assumptions.
Average Yield on Interest Earnings Assets and Average
Yield on Interest Earnings Assets (excluding PAA)
Average yield on interest earning assets represents
annualized interest income divided by average interest
earning assets. Average interest earning assets reflects the
average amortized cost of our investments during the
period. Average yield on interest earning assets (excluding
PAA) is a non-GAAP financial measure that is calculated
using annualized interest income (excluding PAA).
B
Basis Point (“bp” or “bps”)
One hundredth of one percent, used in expressing
differences in interest rates. One basis point is 0.01% of
yield. For example, a bond’s yield that changed from
3.00% to 3.50% would be said to have moved 50 basis
points.
Benchmark
A bond or an index referencing a basket of bonds whose
terms are used for comparison with other bonds of similar
maturity. The global financial market typically looks to
U.S. Treasury securities as benchmarks.
Beneficial Owner
One who benefits from owning a security, even if the
security’s title of ownership is in the name of a broker or
bank.
Board
Refers to the board of directors of Annaly.
Bond
The written evidence of debt, bearing a stated rate or stated
rates of interest, or stating a formula for determining that
rate, and maturing on a date certain, on which date and
upon presentation a fixed sum of money plus interest
(usually represented by interest coupons attached to the
bond) is payable to the holder or owner. Bonds are long-
term securities with an original maturity of greater than one
year.
Book Value Per Share
Calculated by summing common stock, additional paid-in
capital, accumulated other comprehensive income (loss)
and accumulated deficit and dividing that number by the
total common shares outstanding.
Broker
Generic name for a securities firm engaged in both buying
and selling securities on behalf of customers or its own
account.
C
Capital Buffer
Includes unencumbered financial assets which can be
either sold or utilized as collateral to meet liquidity needs.
Capital Ratio (GAAP Capital Ratio)
Calculated as total stockholders’ equity divided by total
assets.
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Item 7. Management’s Discussion and Analysis
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Carry
The amount an asset earns over its hedging and financing
costs. A positive carry happens when the rate on the
securities being financed is greater than the rate on the
funds borrowed. A negative carry is when the rate on the
funds borrowed is greater than the rate on the securities
that are being financed.
CMBX
The CMBX index is a synthetic tradable index referencing
a basket of 25 CMBS of a particular rating and vintage.
The CMBX index allows investors to take a long position
(referred to as selling protection) or short position (referred
to as purchasing protection) on the respective basket of
CMBS securities and is structured as a “pay-as-you-go”
contract whereby the protection seller receives and the
protection buyer pays a standardized running coupon on
the
contracted
notional
amount.
Additionally,
the
protection seller is obligated to pay to the protection buyer
the amount of principal losses and/or coupon shortfalls on
the underlying CMBS securities as they occur.
Collateral
Securities, cash or property pledged by a borrower or party
to a derivative contract to secure payment of a loan or
derivative. If the borrower fails to repay the loan or
defaults under the derivative contract, the secured party
may take ownership of the collateral.
Collateralized Loan Obligation (“CLO”)
A securitization collateralized by loans and other debt
instruments.
Collateralized Mortgage Obligation (“CMO”)
A multiclass bond backed by a pool of mortgage pass-
through securities or mortgage loans.
Commodity Futures Trading Commission (“CFTC”)
An independent U.S. federal agency established by the
Commodity Futures Trading Commission Act of 1974. The
CFTC regulates the swaps, commodity futures and options
markets. Its goals include the promotion of competitive and
efficient futures markets and the protection of investors
against manipulation, abusive trade practices and fraud.
Commercial Mortgage-Backed Security (“CMBS” or
“Commercial Securities”)
Securities collateralized by a pool of mortgages on
commercial real estate in which all principal and interest
from the mortgages flow to certificate holders in a defined
sequence or manner.
Constant Prepayment Rate (“CPR”)
The percentage of outstanding mortgage loan principal that
prepays in one year, based on the annualization of the
Single Monthly Mortality, which reflects the outstanding
mortgage loan principal that prepays in one month.
Convexity
A measure of the change in a security’s duration with
respect to changes in interest rates. The more convex a
security is, the more its duration will change with interest
rate changes.
Corporate Debt
Non-government debt instruments issued by corporations.
Long-term corporate debt can be issued as bonds or loans.
Counterparty
One of two entities in a transaction. For example, in the
bond market a counterparty can be a state or local
government, a broker-dealer or a corporation.
Coupon
The interest rate on a bond that is used to compute the
amount of interest due on a periodic basis.
Credit and Counterparty Risk
Risk to earnings, capital or business, resulting from an
obligor’s or counterparty’s failure to meet the terms of any
contract or otherwise failure to perform as agreed. Credit
and counterparty risk is present in lending, investing,
funding and hedging activities.
Credit Derivatives
Derivative instruments that have one or more underlyings
related to the credit risk of a specified entity (or group of
entities) or an index that exposes the seller to potential loss
from specified credit-risk related events. An example is
credit derivatives referencing the commercial mortgage-
backed securities index.
Credit Risk Transfer (“CRT”) Securities
Credit Risk Transfer securities are risk sharing transactions
issued by Fannie Mae and Freddie Mac and similarly
structured transactions arranged by third party market
participants. The securities issued in the CRT sector are
designed to synthetically transfer mortgage credit risk from
Fannie Mae, Freddie Mac and/or third parties to private
investors.
Current Face
The current remaining monthly principal on a mortgage
security. Current face is computed by multiplying the
original face value of the security by the current principal
balance factor.
D
Dealer
Person or organization that underwrites, trades and sells
securities, e.g., a principal market-maker in securities.
Default Risk
Possibility that a bond issuer will fail to pay principal or
interest when due.
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Derivative
A financial product that derives its value from the price,
price fluctuations and price expectations of an underlying
instrument, index or reference pool (e.g. futures contracts,
options, interest rate swaps, interest rate swaptions and
certain to-be-announced securities).
Discount Price
When the dollar price is below face value, it is said to be
selling at a discount.
Duration
The weighted maturity of a fixed-income investment’s cash
flows, used in the estimation of the price sensitivity of
fixed-income securities for a given change in interest rates.
E
Earnings available for distribution (“EAD”) and
Earnings available for distribution Per Average
Common Share
Non-GAAP financial measure defined as the sum of (a)
economic net interest income, (b) TBA dollar roll income
and CMBX coupon income, (c) net servicing income less
realized amortization of MSR, (d) other income (loss)
(excluding depreciation expense related to commercial real
estate and amortization of intangibles, non-EAD income
allocated to equity method investments and other non-EAD
components of other income (loss)), (e) general and
administrative expenses (excluding transaction expenses
and non-recurring items), and (f) income taxes (excluding
the income tax effect of non-EAD income (loss) items) and
excludes (g) the premium amortization adjustment
representing the cumulative impact on prior periods, but
not the current period, of quarter-over-quarter changes in
estimated long-term prepayment speeds related to our
Agency mortgage-backed securities. Earnings available for
distribution per average common share is a non-GAAP
financial measure calculated by dividing earnings available
for distribution by average basic common shares for the
period.
This metric was previously labeled Core Earnings
(excluding PAA) and Core Earnings (excluding PAA) Per
Average Common Share). The definition of EAD is
identical to the definition of Core Earnings (excluding
PAA) from prior reporting periods.
Economic Capital
A measure of the risk a firm is subject to. It is the amount
of capital a firm needs as a buffer to protect against risk. It
is a probabilistic measure of potential future losses at a
given confidence level over a given time horizon.
Economic Capital Ratio
Non-GAAP financial measure that is calculated as total
stockholders’ equity divided by total economic assets.
Total economic assets includes the implied market value of
TBA derivatives and are net of debt issued by
securitization vehicles.
Economic Interest Expense
Non-GAAP financial measure that is comprised of GAAP
interest expense, the net interest component of interest rate
swaps and net interest on initial margin, which is reported
in Other, net in the Company’s Consolidated Statements of
Comprehensive Income (Loss).
Economic Leverage Ratio (Economic Debt-to-Equity
Ratio)
Non-GAAP financial measure that is calculated as the sum
of recourse debt, cost basis of TBA and CMBX derivatives
outstanding and net forward purchases (sales) of
investments divided by total equity. Recourse debt consists
of repurchase agreements, other secured financing and U.S.
Treasury securities sold, not yet purchased. Debt issued by
securitization vehicles and participations issued are non-
recourse to us and are excluded from this measure.
Economic Net Interest Income
Non-GAAP financial measure that is composed of GAAP
interest income less Economic Interest Expense.
Economic Return
Refers to the Company’s change in book value plus
dividends declared divided by the prior period’s book
value.
Encumbered Assets
Assets on the company’s balance sheet which have been
pledged as collateral against a liability.
ESG
Environmental, social, and governance.
F
Face Amount
The par value (i.e., principal or maturity value) of a
security appearing on the face of the instrument.
Factor
A decimal value reflecting the proportion of the
outstanding principal balance of a mortgage security,
which changes over time, in relation to its original
principal value.
Fannie Mae
Federal National Mortgage Association.
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Federal Deposit Insurance Corporation (“FDIC”)
An independent agency created by the U.S. Congress to
maintain stability and public confidence in the nation’s
financial system by insuring deposits, examining and
supervising financial institutions for safety and soundness
and consumer protection, and managing receiverships.
Federal Funds Rate
The interest rate charged by banks on overnight loans of
their excess reserve funds to other banks.
Federal Housing Financing Agency (“FHFA”)
The FHFA is an independent regulatory agency that
oversees vital components of the secondary mortgage
market including Fannie Mae, Freddie Mac and the Federal
Home Loan Banks.
Financial
Industry
Regulatory
Authority,
Inc.
(“FINRA”)
FINRA is a non-governmental organization tasked with
regulating all business dealings conducted between dealers,
brokers and all public investors.
Fixed-Rate Mortgage
A mortgage featuring level monthly payments, determined
at the outset, which remain constant over the life of the
mortgage.
Fixed Income Clearing Corporation (“FICC”)
The FICC is an agency that deals with the confirmation,
settlement and delivery of fixed-income assets in the U.S.
The agency ensures the systematic and efficient settlement
of U.S. Government securities and mortgage-backed
security transactions in the market.
Floating Rate Bond
A bond for which the interest rate is adjusted periodically
according to a predetermined formula, usually linked to an
index.
Floating Rate CMO
A CMO tranche which pays an adjustable rate of interest
tied to a representative interest rate index such as the
SOFR, the Constant Maturity Treasury or the Cost of
Funds Index.
Freddie Mac
Federal Home Loan Mortgage Corporation.
Futures Contract
A legally binding agreement to buy or sell a commodity or
financial instrument in a designated future month at a price
agreed upon at the initiation of the contract by the buyer
and seller. Futures contracts are standardized according to
the quality, quantity, and delivery time and location for
each commodity. A futures contract differs from an option
in that an option gives one of the counterparties a right and
the other an obligation to buy or sell, while a futures
contract represents an obligation of both counterparties,
one to deliver and the other to accept delivery. A futures
contract is part of a class of financial instruments called
derivatives.
G
GAAP
U.S. generally accepted accounting principles.
Ginnie Mae
Government National Mortgage Association.
H
Hedge
An investment made with the intention of minimizing the
impact of adverse movements in interest rates or securities
prices.
I
Initial Margin
Cash or securities provided by a party to collateralize its
obligations under a transaction that is not based on changes
in the value of such transaction since the trade was
executed.
In-the-Money
Description for an option that has intrinsic value and can
be sold or exercised for a profit; a call option is in-the-
money when the strike price (execution price) is below the
market price of the underlying security.
Interest Bearing Liabilities
Refers to repurchase agreements, debt issued by
securitization vehicles, U.S. Treasury securities sold, not
yet purchased and credit facilities. Average interest bearing
liabilities is based on daily balances.
Interest Earning Assets
Refers to Residential Securities, U.S. Treasury securities,
reverse repurchase agreements, commercial real estate debt
and preferred equity interests, residential mortgage loans
and corporate debt. Average interest earning assets is based
on daily balances.
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Interest-Only (IO) Bond
The interest portion of mortgage, Treasury or bond
payments, which is separated and sold individually from
the principal portion of those same payments.
Interest Rate Risk
The risk that an investment’s value will change due to a
change in the absolute level of interest rates, in the spread
between two rates, in the shape of the yield curve or in any
other interest rate relationship. As market interest rates
rise, the value of current fixed income investment holdings
declines.
Diversifying,
deleveraging
and
hedging
techniques are utilized to mitigate this risk. Interest rate
risk is a form of market risk.
Interest Rate Swap
A binding agreement between counterparties to exchange
periodic interest payments on some predetermined dollar
principal, which is called the notional principal amount.
For example, one party will pay fixed and receive a
variable rate.
Interest Rate Swaption
Options on interest rate swaps. The buyer of a swaption has
the right to enter into an interest rate swap agreement at
some specified date in the future. The swaption agreement
will specify whether the buyer of the swaption will be a
fixed-rate receiver or a fixed-rate payer.
International Swaps and Derivatives Association
(“ISDA”) Master Agreement
Standardized contract developed by ISDA used as an
umbrella under which bilateral derivatives contracts are
entered into.
Inverse IO Bond
An interest-only bond whose coupon is determined by a
formula expressing an inverse relationship to a benchmark
rate, such as SOFR. As the benchmark rate changes, the IO
coupon adjusts in the opposite direction. When the
benchmark rate is relatively low, the IO pays a relatively
high coupon payment, and vice versa.
Investment/Market Risk
Risk to earnings, capital or business resulting in the decline
in value of our assets caused from changes in market
variables, such as interest rates, which affect the values of
Residential Securities and other investment instruments.
Investment Advisers Act
Refers to the Investment Advisers Act of 1940, as
amended.
Investment Company Act
Refers to the Investment Company Act of 1940, as
amended.
L
Leverage
The use of borrowed money to increase investing power
and economic returns.
Leverage Ratio (GAAP Leverage Ratio or Debt-to-
Equity Ratio)
Calculated as total debt to total stockholders’ equity. For
purposes of calculating this ratio total debt includes
repurchase agreements, other secured financing, debt
issued by securitization vehicles, participations issued, and
U.S. Treasury securities sold, not yet purchased. Debt
issued by securitization vehicles and participations issued
are non-recourse to us.
LIBOR (London Interbank Offered Rate)
A rate previously used as a benchmark for financial
transactions. All tenors of LIBOR relevant to us are either
no longer published or are no longer representative.
Liquidity Risk
Risk to earnings, capital or business arising from our
inability to meet our obligations when they come due
without incurring unacceptable losses because of inability
to liquidate assets or obtain adequate funding.
Long-Term CPR
Our projected prepayment speeds for certain Agency
mortgage-backed securities using third party model and
market information. Our prepayment speed projections
incorporate underlying loan characteristics (e.g., coupon,
term, original loan size, original loan-to-value ratio, etc.)
and market data, including interest rate and home price
index forecasts. Changes to model assumptions, including
interest rates and other market data, as well as periodic
revisions to the model will cause changes in the results.
Long-Term Debt
Debt which matures in more than one year.
M
Market Agreed Coupon (“MAC”) Interest Rate Swap
An interest rate swap contract structure with pre-defined,
market agreed terms, developed by SIFMA and ISDA with
the purpose of promoting liquidity and simplified
administration.
Monetary Policy
Action taken by the Federal Open Market Committee of
the Federal Reserve System to influence the money supply
or interest rates.
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Mortgage-Backed Security (“MBS”)
A security representing a direct interest in a pool of
mortgage loans. The pass-through issuer or servicer
collects the payments on the loans in the pool and “passes
through” the principal and interest to the security holders
on a pro rata basis.
Mortgage Loan
A mortgage loan granted by a bank, thrift or other financial
institution that is based solely on real estate as security and
is not insured or guaranteed by a government agency.
Mortgage Servicing Rights (“MSR”)
Contractual agreements constituting the right to service an
existing mortgage where the holder receives the benefits
and bears the costs and risks of servicing the mortgage.
N
NAV
Net asset value.
Net Interest Income
Represents interest income earned on our portfolio
investments, less interest expense paid for borrowings.
Net Interest Margin and Net Interest Margin
(excluding PAA)
Net interest margin represents our interest income less
interest expense divided by average interest earning assets.
Net interest margin (excluding PAA) is a non-GAAP
financial measure that represents the sum of our interest
income (excluding PAA) plus TBA dollar roll income and
CMBX coupon income less economic interest expense
divided by the sum of average interest earning assets plus
average outstanding TBA contract and CMBX balances.
Net Interest Spread and Net Interest Spread (excluding
PAA)
Net interest spread represents the average yield on interest
earning assets less the average GAAP cost of interest
bearing liabilities. Net interest spread (excluding PAA) is a
non-GAAP financial measure that represents the average
yield on interest earning assets (excluding PAA) less the
average economic cost of interest bearing liabilities.
Non-Performing Loan (“NPL”)
A loan that is close to defaulting or is in default.
Notional Amount
A stated principal amount in a derivative contract on which
the contract is based.
O
Operational Risk
Risk to earnings, capital, reputation or business arising
from inadequate or failed internal processes or systems,
human factors or external events.
Option Contract
A contract in which the buyer has the right, but not the
obligation, to buy or sell an asset at a set price on or before
a given date. Buyers of call options bet that a security will
be worth more than the price set by the option (the strike
price), plus the price they pay for the option itself. Buyers
of put options bet that the security’s price will drop below
the price set by the option. An option is part of a class of
financial instruments called derivatives, which means these
financial instruments derive their value from the worth of
an underlying investment.
Original Face
The face value or original principal amount of a security on
its issue date.
Out-of-the-Money
Description for an option that has no intrinsic value and
would be worthless if it expired today; for a call option,
this situation occurs when the strike price is higher than the
market price of the underlying security; for a put option,
this situation occurs when the strike price is less than the
market price of the underlying security.
Overnight Index Swaps (“OIS”)
An interest rate swap in which a fixed rate is exchanged for
an overnight floating rate.
Over-The-Counter (“OTC”) Market
A securities market that is conducted by dealers throughout
the country through negotiation of price rather than
through the use of an auction system as represented by a
stock exchange.
P
Par
Price equal to the face amount of a security; 100%.
Par Amount
The principal amount of a bond or note due at maturity.
Also known as par value.
Pass-Through Security
A securitization structure where a GSE or other entity
“passes” the amount collected from the borrowers every
month to the investor, after deducting fees and expenses.
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Pool
A collection of mortgage loans assembled by an originator
or master servicer as the basis for a security. In the case of
Ginnie Mae, Fannie Mae, or Freddie Mac mortgage pass-
through securities, pools are identified by a number
assigned by the issuing agency.
Premium
The amount by which the price of a security exceeds its
principal amount. When the dollar price of a bond is above
its face value, it is said to be selling at a premium.
Premium Amortization Adjustment (“PAA”)
The cumulative impact on prior periods, but not the current
period, of quarter-over-quarter changes in estimated long-
term prepayment speeds related to our Agency mortgage-
backed securities.
Prepayment
The unscheduled partial or complete payment of the
principal amount outstanding on a mortgage loan or other
debt before it is due.
Prepayment Risk
The risk that falling interest rates will lead to increased
prepayments of mortgage or other loans, forcing the
investor to reinvest at lower prevailing rates.
Prepayment Speed
The estimated rate at which mortgage borrowers will pay
off the mortgages that underlie an MBS.
Primary Market
Market for offers or sales of new bonds by the issuer.
Prime Rate
The indicative interest rate on loans that banks quote to
their best commercial customers.
Principal and Interest
The term used to refer to regularly scheduled payments or
prepayments of principal and payments of interest on a
mortgage or other security.
R
Rate Reset
The adjustment of the interest rate on a floating-rate
security according to a prescribed formula.
Real Estate Investment Trust (“REIT”)
A special purpose investment vehicle that provides
investors with the ability to participate directly in the
ownership or financing of real-estate related assets by
pooling their capital to purchase and manage mortgage
loans and/or income property.
Recourse Debt
Debt on which the economic borrower is obligated to repay
the entire balance regardless of the value of the pledged
collateral. By contrast, the economic borrower’s obligation
to repay non-recourse debt is limited to the value of the
pledged collateral. Recourse debt consists of repurchase
agreements, other secured financing and U.S. Treasury
securities sold, not yet purchased. Debt issued by
securitization vehicles and participations issued are non-
recourse to us and are excluded from this measure.
Reinvestment Risk
The risk that interest income or principal repayments will
have to be reinvested at lower rates in a declining rate
environment.
Re-Performing Loan (“RPL”)
A type of loan in which payments were previously
delinquent by at least 90 days but have resumed.
Repurchase Agreement
The sale of securities to investors with the agreement to
buy them back at a higher price after a specified time
period; a form of short-term borrowing. For the party on
the other end of the transaction (buying the security and
agreeing to sell in the future) it is a reverse repurchase
agreement.
Residential Credit Securities
Refers to CRT securities and non-Agency mortgage-
backed securities.
Residential Securities
Refers to Agency mortgage-backed securities, CRT
securities and non-Agency mortgage-backed securities.
Residual
In securitizations, the residual is the tranche that collects
any cash flow from the collateral that remains after
obligations to the other tranches have been met.
Return on Average Equity
Calculated by taking earnings divided by average
stockholders’ equity.
Reverse Repurchase Agreement
Refer to Repurchase Agreement. The buyer of securities
effectively provides a collateralized loan to the seller.
Risk Appetite Statement
Defines the types and levels of risk we are willing to take
in order to achieve our business objectives, and reflects our
risk management philosophy.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
89
S
Secondary Market
Ongoing market for bonds previously offered or sold in the
primary market.
Secured Overnight Financing Rate (“SOFR”)
Broad measure of the cost of borrowing cash overnight
collateralized by Treasury securities and was chosen by the
Alternative Reference Rate Committee as the preferred
benchmark rate to replace dollar LIBOR.
Settlement Date
The date securities must be delivered and paid for to
complete a transaction.
Short-Term Debt
Generally, debt which matures in one year or less.
However, certain securities that mature in up to three years
may be considered short-term debt.
Spread
When buying or selling a bond through a brokerage firm,
investors will be charged a commission or spread, which is
the difference between the market price and cost of
purchase, and sometimes a service fee. Spreads differ
based on several factors including liquidity.
T
Target Assets
Includes Agency mortgage-backed securities, to-be-
announced forward contracts, CRT securities, MSR, non-
Agency mortgage-backed securities, residential mortgage
loans, and commercial real estate investments.
Tangible Economic Return
Refers to the Company’s change in tangible book value
(calculated by summing common stock, additional paid-in
capital, accumulated other comprehensive income (loss)
and accumulated deficit less intangible assets) plus
dividends declared divided by the prior period’s tangible
book value.
Taxable REIT Subsidiary (“TRS”)
An entity that is owned directly or indirectly by a REIT
and has jointly elected with the REIT to be treated as a
TRS for tax purposes. Annaly and certain of its direct and
indirect subsidiaries have made separate joint elections to
treat these subsidiaries as TRSs.
Term SOFR
The term secured overnight financing rate published by the
Chicago Mercantile Exchange, which is used as a
benchmark for financial transactions.
To-Be-Announced (“TBA”) Securities
A contract for the purchase or sale of a mortgage-backed
security to be delivered at a predetermined price, face
amount, issuer, coupon and stated maturity on an agreed-
upon future date but does not include a specified pool
number and number of pools.
TBA Dollar Roll Income
TBA dollar roll income is defined as the difference in price
between two TBA contracts with the same terms but
different settlement dates. The TBA contract settling in the
later month typically prices at a discount to the earlier
month contract with the difference in price commonly
referred to as the “drop”. TBA dollar roll income
represents the equivalent of interest income on the
underlying security less an implied cost of financing.
Total Return
Investment performance measure over a stated time period
which includes coupon interest, interest on interest, and
any realized and unrealized gains or losses.
Total Return Swap
A derivative instrument where one party makes payments
at a predetermined rate (either fixed or variable) while
receiving a return on a specific asset (generally an equity
index, loan or bond) held by the counterparty.
U
Unencumbered Assets
Assets on our balance sheet which have not been pledged
as collateral against an existing liability.
U.S. Government-Sponsored Enterprise (“GSE”)
Obligations
Obligations of Agencies originally established or chartered
by the U.S. government to serve public purposes as
specified by the U.S. Congress, such as Fannie Mae and
Freddie Mac; these obligations are not explicitly
guaranteed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government.
V
Value-at-Risk (“VaR”)
A statistical technique which measures the potential loss in
value of an asset or portfolio over a defined period for a
given confidence interval.
Variable Interest Entity (“VIE”)
An entity in which equity investors (i) do not have the
characteristics of a controlling financial interest, and/or (ii)
do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial
support from other parties.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
90
Variation Margin
Cash or securities provided by a party to collateralize its
obligations under a transaction as a result of a change in
value of such transaction since the trade was executed or
the last time collateral was provided.
Volatility
A statistical measure of the variance of price or yield over
time. Volatility is low if the price does not change very
much over a short period of time, and high if there is a
greater change.
Voting Interest Entity (“VOE”)
An entity that has sufficient equity to finance its activities
without additional subordinated financial support from
other parties and in which equity investors have a
controlling financial interest.
W
Warehouse Lending
A line of credit extended to a loan originator to fund
mortgages extended by the loan originators to property
purchasers. The loan typically lasts from the time the
mortgage is originated to when the mortgage is sold into
the secondary market, whether directly or through a
securitization. Warehouse lending can provide liquidity to
the loan origination market.
Weighted Average Coupon
The weighted average interest rate of the underlying
mortgage loans or pools that serve as collateral for a
security, weighted by the size of the principal loan
balances.
Weighted Average Life (“WAL”)
The assumed weighted average amount of time that will
elapse from the date of a security’s issuance until each
dollar of principal is repaid to the investor. The WAL will
change as the security ages and depending on the actual
realized
rate
at
which
principal,
scheduled
and
unscheduled, is paid on the loans underlying the MBS.
Y
Yield-to-Maturity
The expected rate of return of a bond if it is held to its
maturity date; calculated by taking into account the current
market price, stated redemption value, coupon payments
and time to maturity and assuming all coupons are
reinvested at the same rate; equivalent to the internal rate
of return.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
91
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are contained within the section titled “Risk Management” of Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and the related notes, together with the Report of Independent Registered Public Accounting Firm
thereon, are set forth beginning on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), reviewed and
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) of the Securities Exchange Act) as of the end of the period covered by this report. Based on that review and
evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed, (1) were
effective in ensuring that information required to be disclosed by Annaly in reports it files or submits under the Securities
Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure and (2) were effective in ensuring that information required to be disclosed by
Annaly in reports it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the SEC’s rules and forms.
There have been no changes in our internal controls over financial reporting that occurred during the three months ended
December 31, 2024 that have materially affected, or are reasonably likely to materially affect our internal control over financial
reporting.
Management’s Annual Report On Internal Control Over Financial Reporting
Management of Annaly is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act. Our
internal control over financial reporting is a process designed by, or under the supervision of, Annaly’s CEO and CFO and
effected by the Annaly’s board of directors, management and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
•
pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of
Annaly;
•
provide reasonable assurance that transactions are
recorded as necessary to permit preparation of
financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of Annaly are being made only in
accordance with authorizations of management and
directors of Annaly; and
•
provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use
or disposition of Annaly’s assets that could have a
material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. As a
result, even systems determined to be effective can provide only reasonable assurance regarding the preparation and
presentation of financial statements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
92
risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies
or procedures may deteriorate.
Annaly’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2024. In making this assessment, the Company’s management used criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission’s (“COSO”) Internal Control-Integrated Framework (2013).
Based on the Annaly’s management’s evaluation under the framework in Internal Control—Integrated Framework (2013),
Annaly’s management concluded that its internal control over financial reporting was effective as of December 31, 2024.
Annaly’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on Annaly’s
internal control over financial reporting, which is included herein.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
93
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Annaly Capital Management, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Annaly Capital Management, Inc. and subsidiaries’ internal control over financial reporting as of December
31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Annaly Capital
Management, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial condition as of December 31, 2024 and 2023, the related consolidated
statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2024, and the related notes and our report dated February 13, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
February 13, 2025
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
94
ITEM 9B. OTHER INFORMATION
During the quarter ended December 31, 2024, no director or officer of the Company adopted, modified or terminated any Rule
10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, each as defined in Item 408 of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
95
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 as to our directors is incorporated herein by reference to the proxy statement to be filed
with the SEC within 120 days after December 31, 2024. The information regarding our executive officers required by Item 10
appears in Part I of this Form 10-K. The information required by Item 10 as to our compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference to the proxy statement to be filed with the SEC within 120 days
after December 31, 2024.
We have adopted a Code of Business Conduct and Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of
Business Conduct and Ethics applies to our principal executive officer, principal financial officer and principal accounting
officer. This Code of Business Conduct and Ethics is publicly available on our website at www.annaly.com. We intend to
satisfy the disclosure requirements regarding amendments to, or waivers from, certain provisions of this Code of Business
Conduct and Ethics by posting on our website.
We have adopted an Insider Trading Policy within the meaning of Item 408(b) of Regulation S-K, which prohibits our
directors, officers and employees, as well as those of our subsidiaries, from buying or selling our securities on the basis of
material nonpublic information and prohibits communicating material nonpublic information about our company to others, and
that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, as well as NYSE
listing standards. Our Insider Trading Policy prohibits our directors, officers and employees from (1) holding our stock in a
margin account as eligible collateral, or otherwise pledging our stock as collateral for a loan, or (2) engaging in any hedging
transactions with respect to our equity securities held by them.
The information regarding certain matters pertaining to our corporate governance required by Items 407(c)(3), (d)(4) and (d)(5)
of Regulation S-K is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after December
31, 2024.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the proxy statement to be filed with the SEC within
120 days after December 31, 2024.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
On May 20, 2020, at our 2020 Annual Meeting of Stockholders, our stockholders approved the 2020 Equity Incentive Plan. The
2020 Equity Incentive Plan authorizes us to grant options, stock appreciation rights, dividend equivalent rights, or other share-
based awards, including restricted shares up to an aggregate of 31,250,000 shares, subject to adjustments for any awards that
were outstanding under our 2010 Equity Incentive Plan (the “Prior Incentive Plan,” together with the 2020 Equity Incentive
Plan, the “Incentive Plans”) on the effective date of the 2020 Equity Incentive Plan and subsequently expire, terminate, or are
surrendered or forfeited.
Since the adoption of the 2020 Equity Incentive Plan, no further awards have been made under the Prior Incentive Plan,
although existing awards remained effective.
The following table provides information as of December 31, 2024 concerning shares of our common stock authorized for
issuance under the Incentive Plans.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
96
(a)
(b)
(c)
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
the Incentive Plans
(excluding securities in
column ‘a’)
Equity compensation plans approved by security holders
—
$
—
27,373,885
Equity compensation plans not approved by security holders
—
—
—
Total
—
$
—
27,373,885
Information with respect to security ownership of certain beneficial owners and management is incorporated herein by
reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2024.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 is incorporated herein by reference to the proxy statement to be filed with the SEC within
120 days after December 31, 2024.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to the proxy statement to be filed with the SEC within
120 days after December 31, 2024.
97
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1.
Financial Statements. See Index to Financial Statements below.
2.
Schedules to Financial Statements. See Index to Financial Statements below
All financial statement schedules not included have been omitted because they are either inapplicable or the information
required is provided in our Financial Statements and Notes thereto.
3. Exhibits. See Exhibit Index below.
EXHIBIT INDEX
Exhibit Number
Exhibit Description
3.1
Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (Registration No.
333-32913) filed August 5, 1997).
3.2
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Registration Statement on Form S-3 (Registration Statement 333-74618)
filed June 12, 2002).
3.3
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 3, 2006).
3.4
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.4 of the Registrant’s Quarterly Report on Form 10-Q filed May 7, 2008).
3.5
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed June 23, 2011).
3.6
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed May 23, 2019).
3.7
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed September 23, 2022).
3.8
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Current Report on Form 8-K filed September 23, 2022).
3.9
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed May 19, 2023).
3.10
Articles Supplementary designating the Registrant’s 6% Series B Cumulative Convertible Preferred Stock,
liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on 8-K filed April 10, 2006).
3.11
Articles Supplementary designating the Registrant’s 7.625% Series C Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed May 16, 2012).
3.12
Articles Supplementary designating the Registrant’s 7.50% Series D Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed September 13, 2012).
3.13
Articles Supplementary designating the Registrant’s 7.625% Series E Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 (incorporated by reference to Exhibit 3.12 to the Registrant’s
Registration Statement on Form 8-A filed July 12, 2016).
3.14
Articles Supplementary reclassifying the Registrant’s 6% Series B Cumulative Convertible Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.13 to the
Registrant’s Registration Statement on Form 8-A filed July 27, 2017).
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
98
3.15
Articles Supplementary designating the Registrant’s 6.95% Series F Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit
3.14 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017).
3.16
Articles Supplementary reclassifying and designating (1) 7,412,500 authorized but unissued shares of the
Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares
of undesignated Common Stock; (2) 650,000 authorized but unissued shares of the Registrant’s 7.625%
Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of undesignated
Common Stock; and (3) 3,400,000 authorized but unissued shares of the Registrant’s 6.95% Series F
Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of
undesignated Common Stock. (incorporated by reference to Exhibit 3.15 of the Registrant’s Quarterly
Report on Form 10-Q filed November 3, 2017).
3.17
Articles Supplementary designating Annaly’s 6.50% Series G Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit
3.16 to the Registrant’s Registration Statement on Form 8-A filed January 10, 2018).
3.18
Articles Supplementary reclassifying and designating (i) 11,500,000 authorized but unissued shares of the
Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares
of Registrant’s undesignated common stock and (ii) 5,000,000 authorized but unissued shares of
Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as
shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the
Registrant’s Quarterly Report on Form 10-Q filed August 3, 2018).
3.19
Form of Articles Supplementary designating Annaly’s 8.125% Series H Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.17 to the
Registrant’s Registration Statement on Form 8-A filed September 7, 2018).
3.20
Articles Supplementary reclassifying and designating 2,200,000 authorized but unissued shares of the
Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares
of undesignated Common Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current
Report on Form 8-K filed June 3, 2019).
3.21
Articles Supplementary designating Annaly’s 6.750% Series I Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit
3.20 to the Registrant’s Registration Statement on Form 8-A filed June 26, 2019).
3.22
Articles Supplementary reclassifying and designating 7,000,000 authorized but unissued shares of
Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as
shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K filed July 22, 2019).
3.23
Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland
effective on January 4, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report
on Form 8-K filed January 5, 2021).
3.24
Amended and Restated Bylaws of the Registrant, December 8, 2022 (incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K filed December 9, 2022).
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed September 17,
1997).
4.2
Specimen Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s
Registration Statement on Form S-3 (Registration No. 333-74618) filed on December 5, 2001).
4.3
Specimen Series F Preferred Stock Certificate (incorporated by reference to Exhibit 4.8 to the Registrant’s
Registration Statement on Form 8-A filed July 27, 2017).
4.4
Specimen Series G Preferred Stock Certificate (incorporated by reference to Exhibit 4.9 to the Registrant’s
Registration Statement on Form 8-A filed January 10, 2018).
4.5
Specimen Series I Preferred Stock Certificate (incorporated by reference to Exhibit 4.7 to the Registrant’s
Registration Statement on Form 8-A filed June 26, 2019).
4.6
Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
February 12, 2010).
4.7
Indenture, dated as of February 1, 2019, between the Registrant and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.7 to the Registrant’s Current Report on Form S-3 filed
February 1, 2019).
4.8
Supplemental Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form
8-K filed February 12, 2010).
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
99
4.9
Second Supplemental Indenture, dated as of May 14, 2012, between the Registrant and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form
8-K filed May 14, 2012).
4.10
Description of Securities. †
10.1
Form of Master Repurchase Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s
Registration Statement on Form S-11 (Registration No. 333-32913) filed August 5, 1997).
10.2
Registrant’s Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 10.5 to the
Registrant’s Annual Report on Form 10-K filed February 23, 2017).*
10.3
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed March 20, 2017).
10.4
2020 Equity Incentive Plan (incorporated herein by reference to Annex A to the Registrant’s proxy
statement dated April 8, 2020).*
10.5
Form of Deferred Stock Unit Award for Directors (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed May 21, 2020).*
10.6
Annaly Capital Management, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed July 1, 2020).*
10.7
Form of 2020 Performance Stock Unit Award (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed July 1, 2020).*
10.8
Form of 2020 Restricted Stock Unit Award (incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K filed July 1, 2020).*
10.9
Form of 2022 Performance Stock Unit Award (incorporated by reference to Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K filed February 18, 2022).*
10.10
Form of 2022 Restricted Stock Unit Award (incorporated by reference to Exhibit 10.11 to the Registrant’s
Annual Report on Form 10-K filed February 18, 2022.*
10.11
Form of 2023 Performance Stock Unit Award (incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K filed February 16, 2023).*
10.12
Form of 2023 Restrictive Stock Unit Award (incorporated by reference to Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K filed February 16, 2023).*
19.1
Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Registrant's Annual Report on
Form 10-K filed February 15, 2024).
21.1
Subsidiaries of Registrant. †
23.1
Consent of Ernst & Young LLP. †
97.1
Dodd-Frank Clawback Policy (incorporated by reference to Exhibit 97.1 to the Registrant's Annual Report
on Form 10-K filed February 15, 2024).
31.1
Certification of David L. Finkelstein, Chief Executive Officer and Co-Chief Investment Officer (Principal
Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. †
31.2
Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†
32.1
Certification of David L. Finkelstein, Chief Executive Officer and Co-Chief Investment Officer (Principal
Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. †
32.2
Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†
101.INS XBRL
The instance document does not appear in the interactive data file because its Extensible Business
Reporting Language (XBRL) tags are embedded within the Inline XBRL document. The following
documents are formatted in Inline XBRL: (i) Consolidated Statements of Financial Condition at December
31, 2024 and 2023; (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2024, 2023 and 2022; (iii) Consolidated Statements of Stockholders’ Equity for the years
ended December 31, 2024, 2023 and 2022; (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2024, 2023 and 2022; and (v) Notes to Consolidated Financial Statements.
101.SCH XBRL
Taxonomy Extension Schema Document †
101.CAL XBRL
Taxonomy Extension Calculation Linkbase Document †
101.DEF XBRL
Additional Taxonomy Extension Definition Linkbase Document Created†
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
100
101.LAB XBRL
Taxonomy Extension Label Linkbase Document †
101.PRE XBRL
Taxonomy Extension Presentation Linkbase Document †
104
The cover page for the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2024
(formatted in Inline XBRL and contained in Exhibit 101).
* Exhibit Numbers 10.2, 10.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11 are management contracts or compensatory plans
required to be filed as Exhibits to this Form 10-K.
† Submitted electronically herewith.
ITEM 16. FORM 10-K SUMMARY
None.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
101
Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
F-1
Consolidated Financial Statements as of December 31, 2024 and 2023 and for the Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Financial Condition
F-3
Consolidated Statements of Comprehensive Income (Loss)
F-4
Consolidated Statements of Stockholders’ Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes To Consolidated Financial Statements
Note 1.
Description of Business
F-7
Note 2.
Basis of Presentation
F-7
Note 3.
Significant Accounting Policies
F-7
Note 4.
Financial Instruments
F-10
Note 5.
Securities
F-10
Note 6.
Loans
F-14
Note 7.
Mortgage Servicing Rights
F-15
Note 8.
Variable Interest Entities
F-16
Note 9.
Sale of Middle Market Lending Portfolio
F-18
Note 10.
Derivative Instruments
F-18
Note 11.
Fair Value Measurements
F-23
Note 12.
Intangible Assets
F-27
Note 13.
Secured Financing
F-27
Note 14.
Capital Stock
F-29
Note 15.
Long-Term Stock Incentive Plan
F-31
Note 16.
Interest Income and Interest Expense
F-32
Note 17.
Net Income (Loss) Per Common Share
F-33
Note 18.
Income Taxes
F-33
Note 19.
Segments
F-34
Note 20.
Risk Management
F-38
Note 21.
Lease Commitments and Contingencies
F-38
Note 22.
Subsequent Events
F-39
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
102
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Annaly Capital Management, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Annaly Capital Management, Inc. and
subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of comprehensive income
(loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 13, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-1
Valuation of mortgage servicing rights
Description of
the Matter
The Company invests in servicing related assets comprised of mortgage servicing rights (“MSR”)
totaling $2.9 billion as of December 31, 2024 as included in Note 7 to the consolidated financial
statements. The Company records MSR at fair value on a recurring basis with changes in fair value
recognized in the statement of comprehensive income (loss). These fair value estimates are based on
valuation techniques used to estimate future cash flows that incorporate unobservable assumptions,
including discount rate, prepayment rate, delinquency rate and cost to service.
Auditing the valuation of MSR is complex and required the use of a specialist due to the high degree of
judgement in the assumptions made by management which are unobservable in nature. Additionally,
selecting and applying audit procedures to address the estimation uncertainty involves auditor
subjectivity and industry-specific knowledge of MSR, including the current market conditions
considered by a market participant.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated and tested the Company’s processes and the design and
operating effectiveness of internal controls addressing the valuation of MSR, comprising management’s
governance over the functionality of the discounted cash flow model utilized to estimate fair value;
management’s review of the reasonableness of the unobservable assumptions used in the discounted cash
flow model (i.e., discount rate, prepayment rate, delinquency rate and cost to service); management’s
comparison of the assumptions used to independent third-party data; and management’s evaluation of the
internal fair value mark to third-party management specialists’ ranges, as well as their evaluation of the
competence and objectivity of those third-party management specialists, to assess the reasonableness of
the fair values developed by the Company.
To test the valuation of MSR, our audit procedures included, among others, evaluating the Company’s
valuation techniques used to estimate future cash flows, validating the accuracy and completeness of
model objective inputs by agreeing these inputs to the Company’s underlying records and third-party
data, evaluating the Company’s model, and testing the significant unobservable assumptions used by
management by comparing them to current industry, market and economic trends. We involved our
valuation specialists to assist in our evaluation of the Company’s valuation techniques and the
assumptions used by management, and to independently develop a range of fair values for the MSR. We
compared the assumptions made by management and management’s estimate of fair value to the
assumptions and fair value ranges developed by third-party management specialists and our independent
ranges to assess management’s estimates of fair value. We also assessed the competence and objectivity
of third-party management specialists engaged to evaluate the reasonableness of the fair values
developed by the Company.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
New York, New York
February 13, 2025
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-2
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
December 31,
December 31,
2024
2023
Assets
Cash and cash equivalents (includes pledged assets of $1,202,880 and $1,136,298, respectively) (1)
$
1,488,027
$
1,412,148
Securities (includes pledged assets of $67,692,062 and $65,400,248, respectively) (2)
69,756,447
69,613,565
Loans, net (includes pledged assets of $2,754,028 and $2,082,419, respectively) (3)
3,546,902
2,353,084
Mortgage servicing rights (includes pledged assets of $2,460,252 and $1,781,279, respectively)
2,909,134
2,122,196
Assets transferred or pledged to securitization vehicles
21,973,188
13,307,622
Derivative assets
225,351
162,557
Receivable for unsettled trades
2,201,447
2,710,224
Principal and interest receivable
1,069,038
1,222,705
Intangible assets, net
9,416
12,106
Other assets
377,434
311,029
Total assets
$ 103,556,384
$
93,227,236
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements
$
65,688,923
$
62,201,543
Other secured financing
750,000
500,000
Debt issued by securitization vehicles
19,540,678
11,600,338
Participations issued
1,154,816
1,103,835
U.S. Treasury securities sold, not yet purchased
2,470,629
2,132,751
Derivative liabilities
59,586
302,295
Payable for unsettled trades
308,282
3,249,389
Interest payable
268,317
287,937
Dividends payable
375,932
325,052
Other liabilities
242,269
179,005
Total liabilities
90,859,432
81,882,145
Stockholders’ equity
Preferred stock, par value $0.01 per share, 63,500,000 authorized, issued and outstanding
1,536,569
1,536,569
Common stock, par value $0.01 per share, 1,468,250,000 authorized, 578,357,118 and 500,080,287 issued
and outstanding, respectively
5,784
5,001
Additional paid-in capital
25,257,716
23,672,391
Accumulated other comprehensive income (loss)
(1,017,682)
(1,335,400)
Accumulated deficit
(13,173,146)
(12,622,768)
Total stockholders’ equity
12,609,241
11,255,793
Noncontrolling interests
87,711
89,298
Total equity
12,696,952
11,345,091
Total liabilities and equity
$ 103,556,384
$
93,227,236
(1) Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.8 million and $2.0 million at December 31, 2024 and 2023,
respectively.
(2) Excludes $2.2 billion and $1.5 billion at December 31, 2024 and 2023, respectively, of non-Agency mortgage-backed securities in
consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.
(3) Includes $10.0 million and $1.2 million of residential mortgage loans held for sale at December 31, 2024 and 2023, respectively.
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-3
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
For The Years Ended December 31,
2024
2023
2022
Net interest income
Interest income
$
4,840,034
$
3,731,581
$
2,778,887
Interest expense
4,592,238
3,842,965
1,309,735
Net interest income
247,796
(111,384)
1,469,152
Net servicing income
Servicing and related income
485,406
364,157
246,926
Servicing and related expense
49,469
37,652
25,145
Net servicing income
435,937
326,505
221,781
Other income (loss)
Net gains (losses) on investments and other
(1,849,585)
(2,125,618)
(4,602,456)
Net gains (losses) on derivatives
2,269,301
400,092
4,859,174
Loan loss (provision) reversal
—
219
20,660
Business divestiture-related gains (losses)
—
—
(40,258)
Other, net
94,935
73,716
6,667
Total other income (loss)
514,651
(1,651,591)
243,787
General and administrative expenses
Compensation expense
130,403
119,592
112,703
Other general and administrative expenses
40,953
42,961
50,026
Total general and administrative expenses
171,356
162,553
162,729
Income (loss) before income taxes
1,027,028
(1,599,023)
1,771,991
Income taxes
15,260
39,434
45,571
Net income (loss)
1,011,768
(1,638,457)
1,726,420
Net income (loss) attributable to noncontrolling interests
9,862
4,714
1,095
Net income (loss) attributable to Annaly
1,001,906
(1,643,171)
1,725,325
Dividends on preferred stock
154,551
141,676
110,623
Net income (loss) available (related) to common stockholders
$
847,355
$
(1,784,847) $
1,614,702
Net income (loss) per share available (related) to common stockholders
Basic
$
1.62
$
(3.61) $
3.93
Diluted
$
1.62
$
(3.61) $
3.92
Weighted average number of common shares outstanding
Basic
521,737,554
494,541,323
411,348,484
Diluted
522,747,610
494,541,323
411,621,758
Other comprehensive income (loss)
Net income (loss)
$
1,011,768
$
(1,638,457) $
1,726,420
Unrealized gains (losses) on available-for-sale securities
(244,278)
580,680
(8,204,542)
Reclassification adjustment for net (gains) losses included in net income (loss)
561,996
1,792,816
3,537,236
Other comprehensive income (loss)
317,718
2,373,496
(4,667,306)
Comprehensive income (loss)
1,329,486
735,039
(2,940,886)
Comprehensive income (loss) attributable to noncontrolling interests
9,862
4,714
1,095
Comprehensive income (loss) attributable to Annaly
1,319,624
730,325
(2,941,981)
Dividends on preferred stock
154,551
141,676
110,623
Comprehensive income (loss) attributable to common stockholders
$
1,165,073
$
588,649
$
(3,052,604)
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-4
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
For The Years Ended December 31,
2024
2023
2022
Preferred stock
Beginning of period
$
1,536,569
$
1,536,569
$
1,536,569
End of period
$
1,536,569
$
1,536,569
$
1,536,569
Common stock
Beginning of period
$
5,001
$
4,683
$
3,649
Issuance
780
315
1,031
Stock-based award activity
3
3
3
End of period
$
5,784
$
5,001
$
4,683
Additional paid-in capital
Beginning of period
$
23,672,391
$
22,981,320
$
20,324,780
Issuance
1,557,536
673,378
2,634,969
Stock-based award activity
27,789
17,693
21,571
End of period
$
25,257,716
$
23,672,391
$
22,981,320
Accumulated other comprehensive income (loss)
Beginning of period
$
(1,335,400) $
(3,708,896) $
958,410
Unrealized gains (losses) on available-for-sale securities
(244,278)
580,680
(8,204,542)
Reclassification adjustment for net (gains) losses included in net income (loss)
561,996
1,792,816
3,537,236
End of period
$
(1,017,682) $
(1,335,400) $
(3,708,896)
Accumulated deficit
Beginning of period
$
(12,622,768) $
(9,543,233) $
(9,653,582)
Net income (loss) attributable to Annaly
1,001,906
(1,643,171)
1,725,325
Dividends declared on preferred stock (1)
(154,551)
(141,676)
(110,623)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)
(1,397,733)
(1,294,688)
(1,504,353)
End of period
$
(13,173,146) $
(12,622,768) $
(9,543,233)
Total stockholder’s equity
$
12,609,241
$
11,255,793
$
11,270,443
Noncontrolling interests
Beginning of period
$
89,298
$
98,983
$
25,499
Net income (loss) attributable to noncontrolling interests
9,862
4,714
1,095
Equity contributions from (distributions to) noncontrolling interests
(11,449)
(14,399)
72,389
End of period
$
87,711
$
89,298
$
98,983
Total equity
$
12,696,952
$
11,345,091
$
11,369,426
(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-5
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For The Years Ended December 31,
2024
2023
2022
Cash flows from operating activities
Net income (loss)
$
1,011,768
$
(1,638,457) $
1,726,420
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net
113,040
185,728
87,154
Amortization of securitized debt premiums and discounts and deferred financing costs
3,579
13,824
(4,733)
Depreciation, amortization and other noncash expenses
30,356
24,806
20,506
Net (gains) losses on investments and derivatives
783,191
3,310,579
109,443
Business divestiture-related (gains) losses
—
—
40,258
Income (loss) from unconsolidated joint ventures
(5,790)
10,270
(11,454)
Loan loss provision (reversal)
—
(219)
(20,660)
Payments on purchases of loans held for sale
(58,306)
—
—
Proceeds from sales and repayments of loans held for sale
48,951
1,577
4,597
Proceeds from U.S. Treasury securities
8,613,104
2,015,608
—
Payments on U.S. Treasury securities
(8,156,998)
—
—
Net receipts (payments) on derivatives
779,334
(862,032)
3,643,954
Net change in
Other assets
(61,883)
(136,804)
(11,437)
Interest receivable
154,651
(585,817)
(403,613)
Interest payable
(19,620)
(37,343)
233,753
Other liabilities
75,282
65,483
(41,777)
Net cash provided by (used in) operating activities
3,310,659
2,367,203
5,372,411
Cash flows from investing activities
Payments on purchases of securities
(32,213,640)
(41,036,338)
(45,474,466)
Proceeds from sales of securities
21,106,379
31,259,983
25,055,929
Principal payments on securities
6,834,322
6,153,217
9,541,036
Payments on purchases and origination of loans
(13,239,286)
(5,503,696)
(6,137,067)
Proceeds from sales of loans
686,062
21,242
1,930,367
Principal payments on loans
2,612,778
1,086,508
1,562,308
Payments on purchases of MSR
(863,117)
(396,806)
(1,009,349)
Proceeds from sales of MSR
66,269
—
9,085
Payments on purchases of interests in MSR
—
—
(4,913)
Proceeds from reverse repurchase agreements
609,316,231
128,615,235
24,500,024
Payments on reverse repurchase agreements
(609,316,231)
(128,615,235)
(24,500,024)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
25,403
—
—
Net cash provided by (used in) investing activities
(14,984,830)
(8,415,890)
(14,527,070)
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing
6,004,596,943
5,351,050,481
3,571,043,066
Payments on repurchase agreements and other secured financing
(6,000,859,559) (5,348,111,535) (3,566,953,367)
Proceeds from issuances of securitized debt
10,330,083
4,480,804
5,473,311
Principal payments on securitized debt
(2,394,166)
(944,163)
(1,234,090)
Payments on purchases of securitized debt
—
(2,504)
(8,495)
Payment of deferred financing cost
(4,259)
(4,012)
—
Proceeds from participations issued
4,135,190
2,007,464
1,908,204
Payments on repurchases of participations issued
(4,055,490)
(1,674,650)
(1,973,666)
Principal payments on participations issued
(45,722)
(52,635)
(50,712)
Net contributions (distributions) from (to) noncontrolling interests
(11,449)
(14,399)
72,389
Net proceeds from stock offerings, direct purchases and dividend reinvestments
1,558,316
673,693
2,636,000
Settlement of stock-based awards in satisfaction of withholding tax requirements
(6,157)
(6,661)
(4,108)
Dividends paid
(1,493,680)
(1,517,762)
(1,519,249)
Net cash provided by (used in) financing activities
11,750,050
5,884,121
9,389,283
Net (decrease) increase in cash and cash equivalents
75,879
(164,566)
234,624
Cash and cash equivalents including cash pledged as collateral, beginning of period
1,412,148
1,576,714
1,342,090
Cash and cash equivalents including cash pledged as collateral, end of period
$
1,488,027
$
1,412,148
$
1,576,714
Supplemental disclosure of cash flow information
Interest received
$
3,782,985
$
3,278,519
$
2,459,012
Interest paid (excluding interest paid on interest rate swaps)
$
3,831,509
$
3,551,873
$
866,829
Net interest received (paid) on interest rate swaps
$
1,649,965
$
1,306,551
$
15,621
Taxes received (paid)
$
(1,688) $
1,104
$
(492)
Noncash investing and financing activities
Receivable for unsettled trades
$
2,201,447
$
2,710,224
$
575,091
Payable for unsettled trades
$
308,282
$
3,249,389
$
1,157,846
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment
$
317,718
$
2,373,496
$
(4,667,306)
Dividends declared, not yet paid
$
375,932
$
325,052
$
412,113
Derecognition of assets of consolidated VIEs
$
—
$
—
$
424,005
Derecognition of securitized debt of consolidated VIEs
$
—
$
—
$
391,928
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-6
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED December 31, 2024, 2023 and 2022
________________________________________________________________________________________________________________________________
1. DESCRIPTION OF BUSINESS
Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a Maryland corporation that commenced operations on
February 18, 1997. The Company is a leading diversified capital manager with investment strategies across mortgage finance.
The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized
mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by
pools of mortgage loans, residential mortgage loans and mortgage servicing rights (“MSR”). The Company’s principal business
objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of
its diversified investment strategies.
Annaly is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined
under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).
The Company’s three investment groups are primarily comprised of the following:
Investment Groups
Description
Annaly Agency Group
Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential
mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and
complementary investments within the Agency market, including Agency commercial MBS.
Annaly Residential Credit Group
Invests primarily in non-Agency residential whole loans and securitized products within the
residential and commercial markets.
Annaly Mortgage Servicing Rights
Group
Invests in mortgage servicing rights (“MSR”), which provide the right to service residential
mortgage loans in exchange for a portion of the interest payments made on the loans.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”).
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the
reported balance sheet amounts and/or disclosures at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ materially from those estimates.
3. SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated
financial statements.
Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has
a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates
whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and
transactions have been eliminated in consolidation.
Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling
financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.
Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a
controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary,
which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s
economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially
be significant to the VIE.
The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s
involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities”
Note for further information.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-7
Equity Method Investments - For entities that are not consolidated, but where the Company has significant influence over the
operating or financial decisions of the entity, the Company accounts for the investment under the equity method of accounting.
In accordance with the equity method of accounting, the Company will recognize its share of earnings or losses of the investee
in the period in which they are reported by the investee. The Company also considers whether there are any indicators of other-
than-temporary impairment of joint ventures accounted for under the equity method. These investments are included in Other
assets with income or loss included in Other, net.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an
overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost,
which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash
on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $1.2 billion and $1.1 billion at
December 31, 2024 and December 31, 2023, respectively.
Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including
certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to
elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been
elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is
recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For
additional information regarding financial instruments for which the Company has elected the FVO refer to the table in the
“Financial Instruments” Note.
Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to
estimate the fair value of certain financial instruments.
Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in
the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated
Statements of Financial Condition if they meet the offsetting criteria. Refer to the “Secured Financing” Note for further
discussion on reverse repurchase and repurchase agreements.
Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of
Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss).
The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s
derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative
Instruments” Note for further discussion.
Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is
generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over
the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a
model.
Compensation expense for awards with performance conditions is recognized based on the probable outcome of the
performance condition at each reporting date. Compensation expense for awards with market conditions is recognized
irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met.
Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded
when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.
Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities”
Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not received
is recognized as Interest receivable in the Consolidated Statements of Financial Condition. Interest income is presented as a
separate line item in the Consolidated Statements of Comprehensive Income (Loss).
For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the
outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or
accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only
securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation
of the effective yield. The Company recalculates the effective yield as differences between anticipated and actual prepayments
occur. Using third party model and market information to project future cash flows and expected remaining lives of securities,
the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s
acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective
yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period.
The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market
factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-8
Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit
securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to
yield made on a prospective basis.
Premiums or discounts associated with the purchase of multifamily securities are amortized or accreted into interest income
based upon their contractual payment terms. If a prepayment occurs, an adjustment is made to the unpaid principal balance and
unamortized premium or discount in the current period and the original effective yield continues to be applied.
Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to
securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the
effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of
discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).
If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued.
For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For
nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt,
interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against
principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a
cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the
scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment
within a reasonable period of time and there is a sustained period of repayment performance by the borrower.
The Company has made an accounting policy election not to measure an allowance for loans losses for accrued interest
receivable. If interest receivable is deemed to be uncollectible or not collected within 90 days of its contractual due date for
commercial loans or 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income.
Any interest written off that is recovered is recognized as interest income.
Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.
Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with
respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to
its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these
subsidiaries as taxable REIT subsidiaries (“TRSs”). As such, each of these TRSs is taxable as a domestic C corporation and
subject to federal, state and local income taxes based upon its taxable income. Refer to the “Income Taxes” Note for further
discussion on income taxes.
Recent Accounting Pronouncements
The Company reviewed other recently issued ASUs and determined that they were not expected to have a significant impact on
the Company’s consolidated financial statements when adopted or did not have a significant impact on the Company’s
consolidated financial statements upon adoption.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-9
4. FINANCIAL INSTRUMENTS
The following table presents characteristics for certain of the Company’s financial instruments at December 31, 2024 and 2023.
Financial Instruments (1)
Balance Sheet Line Item
Type / Form
Measurement Basis
December
31, 2024
December
31, 2023
Assets
(dollars in thousands)
Securities
Agency mortgage-backed securities (2)
Fair value, with unrealized gains (losses)
through other comprehensive income
$
8,234,911
$ 15,665,352
Securities
Agency mortgage-backed securities (3)
Fair value, with unrealized gains (losses)
through earnings
59,199,157
50,643,436
Securities
Residential credit risk transfer securities
Fair value, with unrealized gains (losses)
through earnings
754,915
974,059
Securities
Non-agency mortgage-backed securities
Fair value, with unrealized gains (losses)
through earnings
1,493,186
2,108,274
Securities
Commercial real estate debt investments
- CMBS
Fair value, with unrealized gains (losses)
through earnings
74,278
222,444
Total securities
69,756,447
69,613,565
Loans, net
Residential mortgage loans
Fair value, with unrealized gains (losses)
through earnings
3,546,902
2,353,084
Assets transferred or pledged
to securitization vehicles
Residential mortgage loans
Fair value, with unrealized gains (losses)
through earnings
21,973,188
13,307,622
Liabilities
Repurchase agreements
Repurchase agreements
Amortized cost
$ 65,688,923
$ 62,201,543
Other secured financing
Loans
Amortized cost
750,000
500,000
Debt issued by securitization
vehicles
Securities
Fair value, with unrealized gains (losses)
through earnings
19,540,678
11,600,338
Participations issued
Participations issued
Fair value, with unrealized gains (losses)
through earnings
1,154,816
1,103,835
U.S. Treasury securities sold,
not yet purchased
Securities
Fair value, with unrealized gains (losses)
through earnings
2,470,629
2,132,751
(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at
cost.
(2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities purchased prior to July 1, 2022.
(3) Includes interest-only securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency pass-through, CMO and multifamily
securities.
5. SECURITIES
The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed
securities. All of the debt securities are classified as available-for-sale. Available-for-sale debt securities are carried at fair
value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which
case changes in fair value are recognized in Net gains (losses) on investments and other in the Consolidated Statements of
Comprehensive Income (Loss). Effective July 1, 2022, the Company elected the fair value option for any newly purchased
Agency mortgage-backed securities in order to simplify the accounting for these securities. For the years ended December 31,
2024 and 2023, ($1.1) billion and $611.5 million of unrealized gains (losses) on Agency mortgage-backed securities, for which
the fair value option was elected, were reported in Net gains (losses) on investments and other in the Company’s Consolidated
Statements of Comprehensive Income (Loss). Agency mortgage-backed securities purchased prior to July 1, 2022, are still
classified as available-for-sale with changes in fair value recognized in other comprehensive income. The Company has also
elected the fair value option for CRT securities, interest only securities, Non-Agency and commercial mortgage-backed
securities in order to simplify the accounting. Transactions for regular-way securities are recorded on trade date, including to-
be-announced (“TBA”) securities that meet the regular-way securities scope exception from derivative accounting. Gains and
losses on disposals of securities are recorded on trade date based on the specific identification method.
Impairment – Management evaluates available-for-sale securities where the fair value option has not been elected and held-to-
maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant
such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered
impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely
than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover
the entire amortized cost basis of the security. Further, the security is analyzed for credit loss (the difference between the
present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-10
recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an
allowance for credit losses on securities in the Consolidated Statements of Financial Condition, while the balance of losses
related to other factors will be recognized as a component of Other comprehensive income (loss). When the fair value of a held-
to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire
cost basis of the security.
Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage
obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans
and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage
Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage
Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”).
Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of
a generic pool, on a to-be-announced basis. TBA securities without intent to accept delivery (“TBA derivatives”) are accounted
for as derivatives as discussed in the “Derivative Instruments” Note.
CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured
transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit
risk from Fannie Mae and Freddie Mac to private investors.
Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those
issued in prime loan, prime jumbo loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan
(“RPL”) securitizations.
Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to
herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until
maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.
Commercial Mortgage-Backed Securities (“Commercial Securities”) - The Company invests in Commercial Securities such
as conduit, credit CMBS, single-asset single borrower and collateralized loan obligations.
The following table represents a rollforward of the activity for the Company’s securities for the year ended December 31, 2024:
Agency Securities
Residential Credit
Securities
Commercial Securities
Total
(dollars in thousands)
Beginning balance January 1, 2024
$
66,308,788
$
3,082,333
$
222,444
$
69,613,565
Purchases
28,692,300
574,256
—
29,266,556
Sales
(20,566,652)
(802,933)
(136,313)
(21,505,898)
Principal paydowns
(6,114,284)
(706,226)
(13,774)
(6,834,284)
(Amortization) / accretion
(100,506)
1,692
642
(98,172)
Fair value adjustment
(785,578)
98,979
1,279
(685,320)
Ending balance December 31, 2024
$
67,434,068
$
2,248,101
$
74,278
$
69,756,447
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-11
The following tables present the Company’s securities portfolio that were carried at their fair value at December 31, 2024 and
2023:
December 31, 2024
Principal /
Notional
Remaining
Premium
Remaining
Discount
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Agency
(dollars in thousands)
Fixed-rate pass-through
$ 65,010,762
$
1,329,117
$ (1,178,444) $ 65,161,435
$
130,742
$ (2,242,503) $ 63,049,674
Adjustable-rate pass-through
157,123
11,936
(42)
169,017
2,216
(8,995)
162,238
CMO
87,467
1,459
—
88,926
—
(15,242)
73,684
Interest-only
3,437,570
493,803
—
493,803
14,843
(127,914)
380,732
Multifamily (1)
26,216,351
514,726
(11,830)
3,844,575
7,644
(110,454)
3,741,765
Reverse mortgages
24,916
2,499
—
27,415
—
(1,440)
25,975
Total agency securities
$ 94,934,189
$
2,353,540
$ (1,190,316) $ 69,785,171
$
155,445
$ (2,506,548) $ 67,434,068
Residential credit
Credit risk transfer
$
707,169
$
1,608
$
(3,581) $
705,196
$
49,819
$
(100) $
754,915
Alt-A
172,368
35
(1,724)
170,679
2,694
(8,481)
164,892
Prime (2)
1,824,609
27,484
(10,228)
43,725
2,732
(667)
45,790
Subprime
280,820
12
(30,081)
250,751
6,325
(11,493)
245,583
NPL/RPL
882,547
4,540
(3,762)
883,325
1,630
(6,347)
878,608
Prime jumbo (>=2010 vintage) (3)
10,334,669
84,431
(30,385)
146,285
17,072
(5,044)
158,313
Total residential credit securities
$ 14,202,182
$
118,110
$
(79,761) $
2,199,961
$
80,272
$
(32,132) $
2,248,101
Total residential securities
$ 109,136,371
$
2,471,650
$ (1,270,077) $ 71,985,132
$
235,717
$ (2,538,680) $ 69,682,169
Commercial
Commercial securities
$
74,151
193
$
—
$
74,344
$
38
$
(104) $
74,278
Total securities
$ 109,210,522
$
2,471,843
$ (1,270,077) $ 72,059,476
$
235,755
$ (2,538,784) $ 69,756,447
December 31, 2023
Principal /
Notional
Remaining
Premium
Remaining
Discount
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Agency
(dollars in thousands)
Fixed-rate pass-through
$ 63,444,987
$
1,448,886
$ (1,318,948) $ 63,574,925
$
477,242
$ (1,853,226) $ 62,198,941
Adjustable-rate pass-through
188,996
15,834
(51)
204,779
1,663
(14,953)
191,489
CMO
94,448
1,612
—
96,060
—
(13,088)
82,972
Interest-only
2,010,697
416,955
—
416,955
4,729
(157,679)
264,005
Multifamily (1)
17,130,045
400,781
(9,752)
3,552,217
52,055
(59,744)
3,544,528
Reverse mortgages
26,183
3,193
—
29,376
—
(2,523)
26,853
Total agency investments
$ 82,895,356
$
2,287,261
$ (1,328,751) $ 67,874,312
$
535,689
$ (2,101,213) $ 66,308,788
Residential credit
Credit risk transfer
$
924,729
$
2,240
$
(4,358) $
922,611
$
51,984
$
(536) $
974,059
Alt-A
164,384
9
(3,922)
160,471
2,135
(12,371)
150,235
Prime (2)
1,076,497
8,590
(21,163)
207,077
1,704
(28,134)
180,647
Subprime
272,955
—
(31,751)
241,204
5,622
(11,221)
235,605
NPL/RPL
1,237,531
8,336
(9,224)
1,236,643
4,578
(43,666)
1,197,555
Prime jumbo (>=2010 vintage) (3)
9,425,280
71,960
(49,859)
365,676
10,696
(32,140)
344,232
Total residential credit securities
$ 13,101,376
$
91,135
$
(120,277) $
3,133,682
$
76,719
$
(128,068) $
3,082,333
Total residential securities
$ 95,996,732
$
2,378,396
$ (1,449,028) $ 71,007,994
$
612,408
$ (2,229,281) $ 69,391,121
Commercial
Commercial securities
$
224,597
$
15
$
(822) $
223,790
$
19
$
(1,365) $
222,444
Total securities
$ 96,221,329
$
2,378,411
$ (1,449,850) $ 71,231,784
$
612,427
$ (2,230,646) $ 69,613,565
(1) Principal/Notional amount includes $22.9 billion and $14.0 billion of Agency Multifamly interest-only securities as of December 31, 2024 and December
31, 2023, respectively.
(2) Principal/Notional amount includes $1.8 billion and $0.9 billion of Prime interest-only securities as of December 31, 2024 and December 31, 2023,
respectively.
(3) Principal/Notional amount includes $10.2 billion and $9.1 billion of Prime Jumbo interest-only securities as of December 31, 2024 and December 31,
2023, respectively.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-12
The following table presents the Company’s Agency mortgage-backed securities portfolio by issuing Agency at December 31,
2024 and 2023:
December 31, 2024
December 31, 2023
Investment Type
(dollars in thousands)
Fannie Mae
$
63,211,517
$
60,477,303
Freddie Mac
4,115,085
5,778,809
Ginnie Mae
107,466
52,676
Total
$
67,434,068
$
66,308,788
Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual
maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.
The following table summarizes the Company’s Residential Securities at December 31, 2024 and 2023, according to their
estimated weighted average life classifications:
December 31, 2024
December 31, 2023
Estimated Fair
Value
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated weighted average life
(dollars in thousands)
Less than one year
$
407,856
$
408,090
$
254,753
$
257,170
Greater than one year through five years
1,308,898
1,325,093
5,159,969
5,213,575
Greater than five years through ten years
66,027,670
68,242,391
62,158,711
63,662,144
Greater than ten years
1,937,745
2,009,558
1,817,688
1,875,105
Total
$
69,682,169
$
71,985,132
$
69,391,121
$
71,007,994
The estimated weighted average lives of the Residential Securities at December 31, 2024 and 2023 in the table above are based
upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or
shorter than projected.
The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed
securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such
securities have been in a continuous unrealized loss position at December 31, 2024 and 2023.
December 31, 2024
December 31, 2023
Estimated
Fair Value (1)
Gross
Unrealized
Losses (1)
Number of
Securities (1)
Estimated
Fair Value (1)
Gross
Unrealized
Losses (1)
Number of
Securities (1)
(dollars in thousands)
Less than 12 months
$
49,820
$
(1,477)
34
$
35,453
$
(418)
16
12 Months or more
8,054,162
(1,020,427)
1,377
15,455,118
(1,340,032)
1,747
Total
$
8,103,982
$
(1,021,904)
1,411
$
15,490,571
$
(1,340,450)
1,763
(1) Excludes interest-only mortgage-backed securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency
pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.
The decline in value of these securities is solely due to market conditions and not the quality of the assets. Substantially all of
the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S.
government. An impairment has not been recognized in earnings related to these investments because the decline in value is not
related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that
the securities will be required to be sold before recovery.
During the years ended December 31, 2024 and 2023, the Company disposed of $21.4 billion and $36.4 billion amortized cost
basis of Residential Securities, respectively. The following table presents the Company’s net gains (losses) from the disposal of
Residential Securities for the years ended December 31, 2024 and 2023, which is included in Net gains (losses) on investments
and other in the Consolidated Statements of Comprehensive Income (Loss).
Gross Realized Gains
Gross Realized Losses
Net Realized Gains
(Losses)
For the year ended
(dollars in thousands)
December 31, 2024
$
90,968
$
(977,010)
$
(886,042)
December 31, 2023
$
29,668
$
(2,920,487)
$
(2,890,819)
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-13
6. LOANS
The Company invests in residential loans. Loans are classified as either held for investment or held for sale. Loans are eligible
to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with
changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans
held for sale are accounted for at the lower of cost or fair value.
Excluding loans transferred or pledged to securitization vehicles, as of December 31, 2024 and 2023, the Company had
$3.5 billion and $2.4 billion, respectively, of loans for which the fair value option was elected. If the Company intends to sell or
securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale.
Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company
determines the fair value of loans held for sale on an individual loan basis. The carrying value of the Company’s residential
loans held for sale was $10.0 million and $1.2 million at December 31, 2024 and 2023, respectively.
Allowance for Losses – Prior to the sale of its corporate debt and commercial loan portfolios, the Company evaluated the need
for a loss reserve on each of its loans classified as held-for investment and carried at amortized cost based upon estimated
current expected credit losses.
The Company recorded net loan loss (provisions) reversals of $0, $0.2 million and $20.7 million for the years ended December
31, 2024, 2023 and 2022, respectively. As of December 31, 2024 and 2023, the Company’s loan loss allowance was $0 and $0,
respectively.
The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to
securitization vehicles and loan warehouse facilities, for the year ended December 31, 2024:
Residential Loans
(dollars in thousands)
Beginning balance January 1, 2024
$
2,353,084
Purchases / originations
13,289,226
Sales and transfers (1)
(11,901,699)
Principal payments
(148,631)
Gains / (losses)
(28,011)
(Amortization) / accretion
(17,067)
Ending balance December 31, 2024
$
3,546,902
(1) Includes transfer of residential loans to securitization vehicles with a
carrying value of $11.2 billion during the year ended December 31, 2024.
Residential
The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans.
The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains
(losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also
consolidates securitization trusts in which it retained securities because it also has certain powers and rights to direct the
activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s
consolidated residential mortgage loan trusts.
The mortgage loans are secured by first liens on primarily one-to-four family residential properties. A subsidiary of the
Company has engaged a third party to act as its custodian, agent and bailee for the purposes of receiving and holding certain
documents, instruments and papers related to the residential mortgage loans it purchases. Pursuant to the custodial agreement,
the custodian segregates and maintains continuous custody of all documents constituting the mortgage file with respect to each
mortgage loan owned by the subsidiary in secure and fire resistant facilities and in a manner consistent with the standard of care
employed by prudent mortgage loan document custodians. At or prior to the funding of any residential mortgage loan, the
related seller, pursuant to the terms of our mortgage loan purchase agreement, must deliver to the custodian, the mortgage loan
documents including the mortgage note, the mortgage and other related loan documents. In addition, a complete credit file for
the related mortgage and borrower must be delivered to the subsidiary prior to the date of purchase.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-14
The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio,
including loans transferred or pledged to securitization vehicles, at December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
(dollars in thousands)
Fair value
$
25,520,090 $
15,660,706
Unpaid principal balance
$
26,297,725 $
16,611,204
The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of
Comprehensive Income (Loss) for December 31, 2024 and 2023 for these investments:
For the Years Ended
December 31, 2024
December 31, 2023
(dollars in thousands)
Interest income
$
1,282,941
$
703,838
Net gains (losses) on disposal of investments (1)
(10,761)
(5,049)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)
(15,333)
374,764
Total included in net income (loss)
$
1,256,847
$
1,073,553
(1) These amounts are presented in the line item Net gains (losses) on investments and other in the Consolidated Statements of
Comprehensive Income (loss).
The following table provides the geographic concentrations based on the unpaid principal balances at December 31, 2024 and
2023 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:
Geographic Concentrations of Residential Mortgage Loans
December 31, 2024
December 31, 2023
Property location
% of Balance
Property location
% of Balance
California
39.5%
California
40.1%
New York
10.9%
Florida
10.6%
Florida
10.1%
New York
10.5%
Texas
5.4%
Texas
5.6%
All other (none individually greater than 5%)
34.1%
All other (none individually greater than 5%)
33.2%
Total
100.0%
100.0%
The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or
pledged to securitization vehicles, at December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Portfolio
Range
Portfolio
Weighted
Average
Portfolio
Range
Portfolio
Weighted
Average
(dollars in thousands)
Unpaid principal balance
$1 - $4,396
$471
$1 - $4,396
$477
Interest rate
2.00% - 18.00%
6.43%
2.00% - 13.25%
5.63%
Maturity
7/1/2029 - 12/1/2064
2/3/2053
7/1/2029 - 12/1/2063
4/22/2052
FICO score at loan origination
549 - 850
758
549 - 850
758
Loan-to-value ratio at loan origination
2% - 100%
68%
3% - 100%
68%
At December 31, 2024 and 2023, approximately 16% and 11%, respectively, of the carrying value of the Company’s residential
mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.
7. MORTGAGE SERVICING RIGHTS
MSR represent the rights and obligations associated with servicing pools of residential mortgage loans. The Company and its
subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly
licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR. The Company
generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value. As
such, they are recognized at fair value in the accompanying Consolidated Statements of Financial Condition with changes in the
estimated fair value presented as a component of Net gains (losses) on investments and other in the Consolidated Statements of
Comprehensive Income (Loss).
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-15
The following table presents activity related to MSR for the years ended December 31, 2024 and 2023:
Mortgage Servicing Rights
December 31, 2024
December 31, 2023
(dollars in thousands)
Fair value, beginning of period
$
2,122,196
$
1,748,209
Purchases (1)
863,113
397,585
Sales
(69,703)
—
Change in fair value due to
Changes in valuation inputs or assumptions (2)
162,011
92,374
Other changes, including realization of expected cash flows
(168,483)
(115,972)
Fair value, end of period
$
2,909,134
$
2,122,196
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable.
(2) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.
8. VARIABLE INTEREST ENTITIES
The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $2.3
billion at December 31, 2024. Assets of the VIEs may only be used to settle obligations of the VIEs. Creditors of the VIEs have
no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided
any form of financial support to the VIEs. No gains or losses were recognized upon consolidation of existing VIEs. Interest
income and expense are recognized using the effective interest method.
Multifamily Securitization
In March 2020, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-
off balance of $0.5 billion and retained interest-only securities with a notional balance of $0.5 billion. At the inception of this
arrangement, the Company determined that it was the primary beneficiary based upon its involvement in the design of this VIE
and through the retention of a significant variable interest in the VIE. The Company elected the fair value option for the
financial liabilities of this VIE in order to simplify the accounting; however, the financial assets were not eligible for the fair
value option as it was not elected at purchase.
During the year ended December 31, 2022, the Company deconsolidated the 2020 multifamily VIE since it sold all of its
interest-only securities and no longer retains a significant variable interest in the entity. As a result of the deconsolidation of this
VIE, the Company derecognized approximately $424.0 million of securities and approximately $391.9 million of debt issued by
securitization vehicles and recognized a realized gain of $33.4 million, which is included in Net gains (losses) on investments
and other in the Consolidated Statements of Comprehensive Income (Loss).
Residential Securitizations
The Company also invests in residential mortgage-backed securities issued by entities that are VIEs because they do not have
sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other
parties. The Company is not the primary beneficiary because it does not have the power to direct the activities that most
significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the
amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other
commitments to these VIEs. Refer to the “Securities” Note for further information on Residential Securities.
OBX Trusts
Residential securitizations are issued by entities generally referred to collectively as the “OBX Trusts.” These securitizations
represent financing transactions that provide non-recourse financing to the Company and are collateralized by residential
mortgage loans purchased by the Company. Residential securitizations closed during the year are included in the table below.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-16
Securitization
Date of Closing
Face Value at Closing
(dollars in thousands)
OBX 2024-NQM1
January 2024
$
413,581
OBX 2024-NQM2
January 2024
$
495,980
OBX 2024-HYB1
February 2024
$
412,084
OBX 2024-NQM3
February 2024
$
439,904
OBX 2024-NQM4
March 2024
$
592,448
OBX 2024-HYB2
March 2024
$
397,787
OBX 2024-NQM5
April 2024
$
574,553
OBX 2024-NQM6
April 2024
$
441,421
OBX 2024-NQM7
May 2024
$
551,759
OBX 2024-NQM8
May 2024
$
723,086
OBX 2024-NQM9
June 2024
$
532,126
OBX 2024-NQM10
July 2024
$
482,526
OBX 2024-NQM11
July 2024
$
602,981
OBX 2024-NQM12
August 2024
$
532,193
OBX 2024-NQM13
September 2024
$
582,213
OBX 2024-J1
September 2024
$
357,801
OBX 2024-NQM14
September 2024
$
600,909
OBX 2024-NQM15
October 2024
$
635,777
OBX 2024-NQM16
November 2024
$
538,022
OBX 2024-NQM17
November 2024
$
619,309
OBX 2024-NQM18
December 2024
$
478,317
As of December 31, 2024 and 2023, a total carrying value of $19.5 billion and $11.6 billion, respectively, of bonds were held
by third parties and the Company retained $2.3 billion and $1.4 billion, respectively, of MBS, which were eliminated in
consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to
direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be
potentially significant to these VIEs. Effective August 1, 2022, upon initial consolidation of new securitization entities, the
Company elected to apply the measurement alternative for consolidated collateralized financing entities in order to simplify the
accounting and valuation processes. The liabilities of these securitization entities are deemed to be more observable and are
used to measure the fair value of the assets. During the years ended December 31, 2024 and 2023, the Company incurred $20.3
million and $8.2 million, respectively, of costs in connection with these securitizations that were expensed as incurred. The
contractual principal amount of the OBX Trusts’ debt held by third parties was $20.5 billion and $12.6 billion at December 31,
2024 and 2023, respectively. During the years ended December 31, 2024 and 2023, the Company recorded $3.5 million and
($305.2) million, respectively, of unrealized gains (losses) on debt held by third parties, which is reported in Net gains (losses)
on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss).
Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential
mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings
that are eliminated upon consolidation.
Credit Facility VIEs
In connection with the sale of all of the assets that comprise the MML Portfolio, the credit facilities which provided financing
for the Company’s corporate debt were paid-off and terminated during the year ended December 31, 2022. Refer to the “Sale of
Middle Market Lending Portfolio” Note for additional information on the transaction.
Corporate Debt Funds
The Company managed parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”).
The Fund Entities were considered VIEs because the investors did not have substantive liquidation, kick-out or participating
rights. The fees that the Company earned were not considered variable interests of the VIE. The Company was not the primary
beneficiary of the Fund Entities and therefore did not consolidate the Fund Entities. The corporate loans in the Fund Entities
were assets managed for third parties and were part of the MML Portfolio transferred to Ares during the three months ended
June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-17
Residential Credit Fund
The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to
be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without
additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not
considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its
only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the
entity. As of December 31, 2024 and 2023 the Company had outstanding participating interests in residential mortgage loans of
$1.2 billion and $1.1 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as
secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations
issued in the Consolidated Statements of Financial Condition. The Company elected the fair value option for participations
issued with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of
Comprehensive Income (Loss) to more accurately reflect the economics of the transfers as the underlying loans are carried at
fair value through earnings.
9. SALE OF MIDDLE MARKET LENDING PORTFOLIO
In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by
the MML business operated by the Company, as well as assets managed for third parties (collectively, the “MML Portfolio”), to
Ares Capital Management LLC (“Ares”) for $2.4 billion. The Company’s loans, having an unpaid principal balance of
$1.9 billion, were transferred to Ares for cash proceeds of $1.9 billion and a realized gain of $20.4 million was recorded during
the year ended December 31, 2022. As of December 31, 2022, all loans were transferred to Ares.
10. DERIVATIVE INSTRUMENTS
Derivative instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”),
TBA derivatives, U.S. Treasury and SOFR futures contracts and certain forward purchase commitments. The Company may
also enter into other types of mortgage derivatives such as interest-only securities, credit derivatives referencing the commercial
mortgage-backed securities index and synthetic total return swaps.
In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a
portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps,
swaptions and futures contracts. The Company may also enter into TBA derivatives, U.S. Treasury futures contracts, certain
forward purchase commitments and credit derivatives to economically hedge its exposure to market risks. The purpose of using
derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders.
These derivatives are subject to changes in market values resulting from changes in interest rates, volatility, Agency mortgage-
backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk
relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations
under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative
transactions, the amount of which may vary based on the market value and terms of the derivative contract. In the case of
market agreed coupon (“MAC”) interest rate swaps, the Company may make or receive a payment at the time of entering into
such interest rate swaps, which represents fair value of these swaps, to compensate for the out of market nature of such interest
rate swaps. Subsequent changes in fair value from inception of these interest rate swaps are reflected within Net gains (losses)
on derivatives in the Consolidated Statements of Comprehensive Income (Loss). Similar to other interest rate swaps, the
Company may have to pledge cash or assets as collateral for the MAC interest rate swap transactions. In the event of a default
by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in
accordance with the terms of the derivative contracts.
Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with
changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the
estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have
been designated as hedging instruments for accounting purposes.
The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other
derivatives. In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared
interest rate swaps net of variation margin pledged or received under such transactions. At December 31, 2024 and 2023, ($3.3)
billion and ($2.4) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.
Initial margin is reported in Cash and cash equivalents in the Consolidated Statements of Financial Condition.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-18
Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk. In
particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase
agreements by economically hedging cash flows associated with these borrowings. The Company may have outstanding interest
rate swap agreements where the floating leg is linked to the SOFR, the overnight index swap rate or another index. Interest rate
swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”). Uncleared interest rate swaps
are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared interest rate
swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values. If an interest rate swap is
terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid
and fair value.
Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates. Interest
rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term
and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. The premium paid or
received for swaptions is reported as an asset or liability in the Consolidated Statements of Financial Condition. If a swaption
expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid. If the Company
sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash
received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of swaptions are
estimated using internal pricing models and compared to the counterparty market values.
TBA Dollar Rolls – TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA
derivatives is based on methods similar to those used to value Agency mortgage-backed securities.
Futures Contracts – Futures contracts are derivatives that track the prices of specific assets or benchmark rates. Short sales of
futures contracts help to mitigate the potential impact of changes in interest rates on the portfolio performance. The Company
maintains margin accounts which are settled daily with Futures Commission Merchants (“FCMs”). The margin requirement
varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued
based on exchange pricing.
Forward Purchase Commitments – The Company may enter into forward purchase commitments with counterparties whereby
the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans
close with the counterparties. The counterparties are required to deliver the committed loans on a “best efforts” basis.
Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities
index, such as the CMBX index, and synthetic total return swaps.
The following table summarizes fair value information about the Company’s derivative assets and liabilities at December 31,
2024 and 2023:
Derivatives Instruments
December 31, 2024
December 31, 2023
Assets
(dollars in thousands)
Interest rate swaps
$
21,226
$
26,344
Interest rate swaptions
—
105,883
TBA derivatives
8,635
20,689
Futures contracts
190,980
—
Purchase commitments
4,510
9,641
Total derivative assets
$
225,351
$
162,557
Liabilities
Interest rate swaps
$
7,212
$
83,051
TBA derivatives
30,539
39,070
Futures contracts
16,650
179,835
Purchase commitments
5,185
339
Total derivative liabilities
$
59,586
$
302,295
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-19
The following tables summarize certain characteristics of the Company’s interest rate swaps at December 31, 2024 and 2023:
December 31, 2024
Maturity
Current
Notional (1)(2)
Weighted Average
Pay Rate
Weighted Average
Receive Rate
Weighted Average
Years to Maturity (3)
(dollars in thousands)
0 - 3 years
$
30,411,229
3.49%
4.48%
1.14
3 - 6 years
12,764,021
3.15%
4.50%
4.27
6 - 10 years
21,318,937
2.55%
4.53%
7.63
Greater than 10 years
1,559,384
3.40%
4.41%
23.25
Total / Weighted average
$
66,053,571
3.11%
4.50%
4.36
December 31, 2023
Maturity
Current
Notional (1)(2)
Weighted Average
Pay Rate
Weighted Average
Receive Rate
Weighted Average
Years to Maturity (3)
(dollars in thousands)
0 - 3 years
$
21,397,358
3.17%
5.26%
1.23
3 - 6 years
12,461,799
3.09%
5.37%
4.75
6 - 10 years
22,949,150
2.85%
5.34%
8.02
Greater than 10 years
2,021,247
3.53%
5.27%
22.71
Total / Weighted average
$
58,829,554
3.04%
5.31%
5.36
(1) As of December 31, 2024, 95% and 5% of the Company’s interest rate swaps were linked to SOFR and the Federal funds rate, respectively.
As of December 31, 2023, 94% and 6% of the Company’s interest rate swaps were linked to SOFR and the Federal funds rate, respectively.
(2) There were no forward starting swaps at December 31, 2024 and December 31, 2023.
(3) The weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest
rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed.
The following tables summarize certain characteristics of the Company’s swaptions at December 31, 2024 and 2023:
December 31, 2024
Current
Underlying
Notional
Weighted Average
Underlying Fixed
Rate
Weighted Average
Underlying
Floating Rate
Weighted Average
Underlying Years to
Maturity
Weighted Average
Months to Expiration
(dollars in thousands)
Long pay
$—
—%
SOFR
0.00
0
Long receive
$—
—%
SOFR
0.00
0
December 31, 2023
Current
Underlying
Notional
Weighted Average
Underlying Fixed
Rate
Weighted Average
Underlying
Floating Rate
Weighted Average
Underlying Years to
Maturity
Weighted Average
Months to Expiration
(dollars in thousands)
Long pay
$1,250,000
2.21%
SOFR
7.69
8.21
Long receive
$500,000
1.65%
SOFR
10.30
3.53
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-20
The following tables summarize certain characteristics of the Company’s TBA derivatives at December 31, 2024 and 2023:
December 31, 2024
Purchase and Sale Contracts
for Derivative TBAs
Notional
Implied Cost Basis
Implied Market Value
Net Carrying Value
(dollars in thousands)
Purchase contracts
$
4,237,000
$
4,239,001
$
4,209,341
$
(29,660)
Sale contracts
(1,120,000)
(1,080,943)
(1,073,187)
7,756
Net TBA derivatives
$
3,117,000
$
3,158,058
$
3,136,154
$
(21,904)
December 31, 2023
Purchase and Sale Contracts
for Derivative TBAs
Notional
Implied Cost Basis
Implied Market Value
Net Carrying Value
(dollars in thousands)
Purchase contracts
$
988,000
$
920,626
$
915,790
$
(4,836)
Sale contracts
(1,491,000)
(1,475,847)
(1,489,392)
(13,545)
Net TBA derivatives
$
(503,000) $
(555,221) $
(573,602) $
(18,381)
The following tables summarize certain characteristics of the Company’s futures derivatives at December 31, 2024 and 2023:
December 31, 2024
Notional - Long
Positions
Notional - Short
Positions
Weighted Average
Years to Maturity
(dollars in thousands)
U.S. Treasury futures - 2 year
$
6,511,600
$
—
1.98
U.S. Treasury futures - 5 year
1,960,500
—
4.40
U.S. Treasury futures - 10 year and greater
—
(9,840,500)
11.05
Total
$
8,472,100
$
(9,840,500)
7.11
December 31, 2023
Notional - Long
Positions
Notional - Short
Positions
Weighted Average
Years to Maturity
(dollars in thousands)
U.S. Treasury futures - 2 year
$
—
$
(5,001,400)
1.97
U.S. Treasury futures - 10 year and greater
—
(1,733,600)
14.26
Total
$
—
$
(6,735,000)
5.13
The Company presents derivative contracts on a gross basis in the Consolidated Statements of Financial Condition. Derivative
contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each
counterparty.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-21
The following tables present information about derivative assets and liabilities that are subject to such provisions and can be
offset in the Company’s Consolidated Statements of Financial Condition at December 31, 2024 and 2023, respectively.
December 31, 2024
Amounts Eligible for Offset
Gross Amounts
Financial Instruments
Cash Collateral
Net Amounts
Assets
(dollars in thousands)
Interest rate swaps, at fair value
$
21,226
$
(8,138) $
—
$
13,088
TBA derivatives, at fair value
8,635
(879)
(929)
6,827
Futures contracts, at fair value
190,980
(16,650)
—
174,330
Purchase commitments
4,510
—
—
4,510
Liabilities
Interest rate swaps, at fair value
$
7,212
$
(7,212) $
—
$
—
TBA derivatives, at fair value
30,539
(19,495)
—
11,044
Futures contracts, at fair value
16,650
(16,650)
—
—
Purchase commitments
5,185
—
—
5,185
December 31, 2023
Amounts Eligible for Offset
Gross Amounts
Financial Instruments
Cash Collateral
Net Amounts
Assets
(dollars in thousands)
Interest rate swaps, at fair value
$
26,344
$
(21,505) $
—
$
4,839
Interest rate swaptions, at fair value
105,883
(45,930)
(57,320)
2,633
TBA derivatives, at fair value
20,689
(13,282)
—
7,407
Purchase commitments
9,641
—
—
9,641
Liabilities
Interest rate swaps, at fair value
$
83,051
$
(72,844) $
—
$
10,207
TBA derivatives, at fair value
39,070
(34,525)
—
4,545
Futures contracts, at fair value
179,835
—
(179,835)
—
Purchase commitments
339
—
—
339
The effect of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss) is as follows:
Location on Consolidated Statements of Comprehensive Income (Loss)
Net Interest Component of
Interest Rate Swaps (1)
Realized Gains (Losses) on
Termination of Interest
Rate Swaps (1)
Unrealized Gains (Losses)
on Interest Rate Swaps (1)
For the years ended
(dollars in thousands)
December 31, 2024
$
1,202,907
$
(60,489) $
1,001,988
December 31, 2023
$
1,585,053
$
(74,757) $
(815,630)
December 31, 2022
$
366,161
$
(266,427) $
3,480,708
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-22
The effect of other derivative contracts in the Company’s Consolidated Statements of Comprehensive Income (Loss) is as
follows:
Year Ended December 31, 2024
Derivative Instruments
Realized Gain (Loss)
Unrealized Gain (Loss)
Amount of Gain/(Loss)
Recognized in Net Gains
(Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives
$
(13,220) $
(3,524) $
(16,744)
Net interest rate swaptions
(37,401)
(68,482)
(105,883)
Futures (1)
(96,667)
354,164
257,497
Purchase commitments
—
(9,975)
(9,975)
Total
$
124,895
(1) For the year ended December 31, 2024, includes ($6.8) million of realized loss related to SOFR futures options.
Year Ended December 31, 2023
Derivative Instruments
Realized Gain (Loss)
Unrealized Gain (Loss)
Amount of Gain/(Loss)
Recognized in Net Gains
(Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives
$
(174,666) $
33,833
$
(140,833)
Net interest rate swaptions
(29,438)
(119,348)
(148,786)
Futures
194,316
(201,095)
(6,779)
Purchase commitments
—
7,932
7,932
Credit derivatives
(19,368)
13,260
(6,108)
Total
$
(294,574)
Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master
Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to
the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of
specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the
Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New
York Stock Exchange.
Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the
applicable agreement has a right to terminate the agreement in accordance with its provisions. The aggregate fair value of all
derivative instruments with the aforementioned features were in a net asset position at December 31, 2024.
11. FAIR VALUE MEASUREMENTS
The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR that are
accounted for at fair value. The fair value of a financial instrument and MSR is the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
GAAP requires classification of financial instruments and MSR into a three-level hierarchy based on the priority of the inputs
to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
If the inputs used to measure the financial instrument and MSR fall within different levels of the hierarchy, the categorization is
based on the lowest priority input that is significant to the fair value measurement of the instrument. Financial assets and
liabilities recorded at fair value in the Consolidated Statements of Financial Condition or disclosed in the related notes are
categorized based on the inputs to the valuation techniques as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active
markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-23
Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value.
The Company designates its securities as trading, available-for-sale or held-to-maturity depending upon the type of security and
the Company’s intent and ability to hold such security to maturity. Securities classified as available-for-sale and trading are
reported at fair value on a recurring basis.
The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies
are applied to assets and liabilities across the three-level fair value hierarchy, with the observability of inputs determining the
appropriate level.
Futures contracts and U.S. Treasury securities are valued using quoted prices for identical instruments in active markets and are
classified as Level 1.
Residential Securities, interest rate swaps, swaptions and other derivatives are valued using quoted prices or internally
estimated prices for similar assets using internal models. The Company incorporates common market pricing methods,
including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including
coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair
value. Fair value estimates for residential mortgage loans are generated by a discounted cash flow model and are primarily
based on observable market-based inputs including discount rates, prepayment speeds, delinquency levels, and credit losses.
Management reviews and indirectly corroborates its estimates of the fair value derived using internal models by comparing its
results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset
classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA
securities.
Residential Securities, residential mortgage loans, interest rate swap and swaption markets and TBA derivatives are considered
to be active markets such that participants transact with sufficient frequency and volume to provide transparent pricing
information on an ongoing basis. The liquidity of the Residential Securities, residential mortgage loans, interest rate swaps,
swaptions and TBA derivatives markets and the similarity of the Company’s securities to those actively traded enable the
Company to observe quoted prices in the market and utilize those prices as a basis for formulating fair value
measurements. Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps,
swaptions and TBA derivatives as Level 2 inputs in the fair value hierarchy.
The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices
of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying
collateral. Consequently, commercial mortgage-backed securities carried at fair value are classified as Level 2.
For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional
information.
The Company has classified its investments in MSR as Level 3. Fair value estimates for these investments are obtained from
models, which use significant unobservable inputs in their valuations. These valuations primarily utilize discounted cash flow
models that incorporate unobservable market data inputs including discount rates, prepayment rates, delinquency rates and costs
to service. Model valuations are then compared to valuations obtained from third party pricing providers. Management reviews
the valuations received from third party pricing providers and uses them as a point of comparison to modeled values. The
valuation of MSR require significant judgment by management and the third party pricing providers. Assumptions used for
which there is a lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s
financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-24
The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring
basis as of December 31, 2024 and December 31, 2023. There were no transfers between levels of the fair value hierarchy
during the periods presented.
December 31, 2024
Level 1
Level 2
Level 3
Total
Assets
(dollars in thousands)
Securities
Agency mortgage-backed securities
$
—
$
67,434,068
$
—
$
67,434,068
Credit risk transfer securities
—
754,915
—
754,915
Non-Agency mortgage-backed securities
—
1,493,186
—
1,493,186
Commercial mortgage-backed securities
—
74,278
—
74,278
Loans
Residential mortgage loans
—
3,546,902
—
3,546,902
Mortgage servicing rights
—
—
2,909,134
2,909,134
Assets transferred or pledged to securitization vehicles
—
21,973,188
—
21,973,188
Derivative assets
Interest rate swaps
—
21,226
—
21,226
Other derivatives
190,980
13,145
—
204,125
Total assets
$
190,980
$
95,310,908
$
2,909,134
$
98,411,022
Liabilities
Debt issued by securitization vehicles
$
—
$
19,540,678
$
—
$
19,540,678
Participations issued
—
1,154,816
—
1,154,816
U.S. Treasury securities sold, not yet purchased
2,470,629
—
—
2,470,629
Derivative liabilities
Interest rate swaps
—
7,212
—
7,212
Other derivatives
16,650
35,724
—
52,374
Total liabilities
$
2,487,279
$
20,738,430
$
—
$
23,225,709
December 31, 2023
Level 1
Level 2
Level 3
Total
Assets
(dollars in thousands)
Securities
Agency mortgage-backed securities
$
—
$
66,308,788
$
—
$
66,308,788
Credit risk transfer securities
—
974,059
—
974,059
Non-Agency mortgage-backed securities
—
2,108,274
—
2,108,274
Commercial mortgage-backed securities
—
222,444
—
222,444
Loans
Residential mortgage loans
—
2,353,084
—
2,353,084
Mortgage servicing rights
—
—
2,122,196
2,122,196
Assets transferred or pledged to securitization vehicles
—
13,307,622
—
13,307,622
Derivative assets
Interest rate swaps
—
26,344
—
26,344
Other derivatives
—
136,213
—
136,213
Total assets
$
—
$
85,436,828
$
2,122,196
$
87,559,024
Liabilities
Debt issued by securitization vehicles
$
—
$
11,600,338
$
—
$
11,600,338
Participations issued
—
1,103,835
—
1,103,835
U.S. Treasury securities sold, not yet purchased
2,132,751
—
—
2,132,751
Derivative liabilities
Interest rate swaps
—
83,051
—
83,051
Other derivatives
179,835
39,409
—
219,244
Total liabilities
$
2,312,586
$
12,826,633
$
—
$
15,139,219
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-25
Qualitative and Quantitative Information about Level 3 Fair Value Measurements
The Company considers unobservable inputs to be those for which market data is not available and that are developed using the
best information available to us about the assumptions that market participants would use when pricing the asset. Relevant
inputs vary depending on the nature of the instrument being measured at fair value. The sensitivities of significant unobservable
inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value
measurements are described below. The effect of a change in a particular assumption in the sensitivity analysis below is
considered independently from changes in any other assumptions. In practice, simultaneous changes in assumptions may not
always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and
unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships
described below, the inverse relationship would also generally apply. For MSR, in general, increases in the discount,
prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement. A
decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in
MSR, which in turn could result in a decline in the estimated fair value of MSR. Refer to the “Mortgage Servicing Rights” Note
for additional information, including rollforwards.
The following table presents information about the significant unobservable inputs used for recurring fair value measurements
for Level 3 MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in
these Level 3 investments.
Unobservable Input (1)
Range (Weighted Average) (2)
December 31, 2024
December 31, 2023
Discount rate
7.4% - 12.4% (8.4%)
7.0% - 12.0% (8.6%)
Prepayment rate
4.7% - 17.2% (5.6%)
4.8% - 11.0% (5.6%)
Delinquency rate
0.2% - 4.1% (1.3%)
0.2% - 4.2% (1.3%)
Cost to service
$83 - $99 ($87)
$84 - $111 ($94)
(1) Represents rates, estimates and assumptions that the Company believes would be used by
market participants when valuing these assets.
(2) Weighted average discount rate computed based on the fair value of MSR, weighted
average prepayment rate, delinquency rate and cost to service based on unpaid principal
balances of loans underlying the MSR.
The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at
December 31, 2024 and 2023.
December 31, 2024
December 31, 2023
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Financial liabilities
Repurchase agreements
$65,688,923
$65,688,923
$62,201,543
$62,201,543
Other secured financing
750,000
750,000
500,000
500,000
The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered
Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-26
12. INTANGIBLE ASSETS
Intangible assets, net
Finite life intangible assets are amortized over their expected useful lives. As part of the Company’s management
internalization transaction, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired
assembled workforce of approximately $41.2 million based on the replacement cost of the employee base acquired by the
Company.
The following table presents the activity of finite lived intangible assets for the year ended December 31, 2024.
Intangible Assets, net
(dollars in thousands)
Beginning balance January 1, 2024
$
12,106
Less: amortization expense
(2,690)
Ending balance December 31, 2024
$
9,416
13. SECURED FINANCING
Reverse Repurchase and Repurchase Agreements – The Company finances a significant portion of its assets with repurchase
agreements. At the inception of each transaction, the Company assessed each of the specified criteria in ASC 860, Transfers
and Servicing, and has determined that each of the financing agreements should be treated as a secured financing.
The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure,
the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in
market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or
greater than the value of the secured financing.
Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net
in the Consolidated Statements of Financial Condition when the terms of the agreements meet the criteria to permit netting. The
Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements
as investing activities in the Consolidated Statements of Cash Flows.
The Company had outstanding $65.7 billion and $62.2 billion of repurchase agreements with weighted average remaining
maturities of 32 days and 44 days and weighted average rates of 4.76% and 5.70% at December 31, 2024 and 2023,
respectively. In connection with its residential mortgage loans, the Company has select arrangements with counterparties to
enter into repurchase agreements for $3.6 billion with remaining capacity of $2.2 billion at December 31, 2024.
At December 31, 2024 and 2023, the repurchase agreements had the following remaining maturities and collateral types:
December 31, 2024
Agency Mortgage-
Backed Securities
CRTs
Non-Agency
Mortgage-Backed
Securities
Residential
Mortgage Loans
Commercial
Mortgage-Backed
Securities
Total
Repurchase
Agreements
(dollars in thousands)
1 day
$
—
$
—
$
—
$
—
$
—
$
—
2 to 29 days
28,603,831
405,341
861,271
—
66,010
29,936,453
30 to 59 days
34,496,443
116,087
682,037
251,357
—
35,545,924
60 to 89 days
692,255
47,583
545,684
—
—
1,285,522
90 to 119 days
2,085
—
60,383
—
—
62,468
Over 119 days (1)
—
—
332,040
1,139,604
—
1,471,644
Total
$
63,794,614
$
569,011
$
2,481,415
$
1,390,961
$
66,010
$ 68,302,011
Amounts offset in accordance with netting arrangements.
(2,613,088)
Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition.
$ 65,688,923
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-27
December 31, 2023
Agency Mortgage-
Backed Securities
CRTs
Non-Agency
Mortgage-Backed
Securities
Residential
Mortgage Loans
Commercial
Mortgage-Backed
Securities
Total
Repurchase
Agreements
(dollars in thousands)
1 day
$
—
$
—
$
—
$
—
$
—
$
—
2 to 29 days
33,492,952
555,568
840,400
—
191,276
35,080,196
30 to 59 days
18,090,265
—
528,341
—
—
18,618,606
60 to 89 days
6,479,206
139,952
579,611
—
—
7,198,769
90 to 119 days
—
—
39,714
207,592
—
247,306
Over 119 days (1)
2,511,003
—
169,697
644,259
—
3,324,959
Total
$
60,573,426
$
695,520
$
2,157,763
$
851,851
$
191,276
$ 64,469,836
Amounts offset in accordance with netting arrangements.
(2,268,293)
Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition.
$ 62,201,543
(1) Less than 1% of the total repurchase agreements had a remaining maturity over 1 year at December 31, 2024. No repurchase agreements had a
remaining maturity over 1 year at December 31, 2023.
The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts
offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as
presented in the Consolidated Statements of Financial Condition at December 31, 2024 and 2023. Refer to the “Derivative
Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.
December 31, 2024
December 31, 2023
Reverse Repurchase
Agreements
Repurchase
Agreements
Reverse Repurchase
Agreements
Repurchase
Agreements
(dollars in thousands)
Gross amounts
$
2,613,088
$
68,302,011
$
2,268,293
$
64,469,836
Amounts offset
(2,613,088)
(2,613,088)
(2,268,293)
(2,268,293)
Netted amounts
$
—
$
65,688,923
$
—
$
62,201,543
The fair value of collateral received in connection with reverse repurchase agreements as of December 31, 2024 was
$2.6 billion, of which the Company sold $2.5 billion. The fair value of collateral received in connection with reverse repurchase
agreements as of December 31, 2023 was $2.3 billion, of which the Company sold $2.1 billion. The amount of collateral sold is
reported at fair value in the Company’s Consolidated Statements of Financial Condition as U.S. Treasury securities sold, not yet
purchased.
Other Secured Financing - As of December 31, 2024, the Company had $1.6 billion in total committed credit facilities to
finance a portion of its MSR portfolio. Outstanding borrowings under this facility as of December 31, 2024 totaled
$750.0 million with maturities ranging between one month to two years. As of December 31, 2023, the Company had
$1.25 billion in total committed credit facilities to finance a portion of its MSR portfolio. Outstanding borrowings under this
facility as of December 31, 2023 totaled $500.0 million with maturities ranging between six months to one year. The weighted
average interest rate of the borrowings was 7.21% and 8.09% as of December 31, 2024 and 2023, respectively. Borrowings are
reported in Other secured financing in the Company’s Consolidated Statements of Financial Condition.
Refer to the “Variable Interest Entities” Note for additional information on the Company’s other secured financing
arrangements at December 31, 2023.
Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential mortgage
loans of consolidated VIEs, had an estimated fair value and accrued interest of $71.8 billion and $332.7 million, respectively, at
December 31, 2024 and $68.2 billion and $279.5 million, respectively, at December 31, 2023.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-28
14. CAPITAL STOCK
(A)
Common Stock
The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at December
31, 2024 and 2023.
Shares authorized
Shares issued and outstanding
December 31, 2024
December 31, 2023
December 31, 2024
December 31, 2023
Par Value
Common stock
1,468,250,000
1,468,250,000
578,357,118
500,080,287
$0.01
In January 2022, the Company announced that its Board authorized the repurchase of up to $1.5 billion of its outstanding shares
of common stock through December 31, 2024 (the “Prior Common Stock Repurchase Program”). In January 2025, the
Company announced that its Board authorized the repurchase of up to $1.5 billion of its outstanding shares of common stock
through December 31, 2029 (the “Current Common Stock Repurchase Program”). The Current Common Stock Repurchase
Program replaced the Prior Common Stock Repurchase Program. During the years ended December 31, 2024 and 2023, no
shares were repurchased under the Prior Common Stock Repurchase Program.
Purchases made pursuant to the Current Common Stock Repurchase Program will be made in either the open market or in
privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing,
manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to
economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not
obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at
our discretion without prior notice.
On August 6, 2020, the Company entered into separate Amended and Restated Distribution Agency Agreements (as amended
by Amendment No. 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No.
2 to the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Prior Sales
Agreements”) with each of Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co.
LLC, Keefe, Bruyette & Woods, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells
Fargo Securities, LLC (collectively, the “Prior Sales Agents”). Pursuant to the Prior Sales Agreements, the Company offered
and sold shares of its common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of
the Prior Sales Agents (the “Prior At-the-Market Sales Program”).
On September 20, 2024, the Company entered into new Distribution Agency Agreements (collectively, the “Sales
Agreements”) with each of Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Citizens JMP Securities,
LLC, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., Morgan Stanley & Co., LLC,
RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), which
terminated and replaced the Prior Sales Agreements. Under the terms of the Sales Agreements, the Company may offer and sell
shares of its common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Sales
Agents (the “Current At-the-Market Sales Program” and, together with the Prior At-the-Market Sales Program, the “at-the-
market sales program”).
During the year ended December 31, 2024, under the at-the-market sales program, the Company issued 77.9 million shares for
proceeds of $1.6 billion, net of commissions and fees. During the year ended December 31, 2023, under the at-the-market sales
program, the Company issued 31.4 million shares for proceeds of $0.7 billion, net of commissions and fees.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-29
(B)
Preferred Stock
The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at December 31, 2024 and
2023. In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes
precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets.
Shares Authorized
Shares Issued And
Outstanding
Carrying Value
Contractual
Rate
Earliest
Redemption
Date (1)
Effective
Date of
Floating
Rate
Dividend
Period
Floating
Annual Rate (2)
December
31, 2024
December
31, 2023
December
31, 2024
December
31, 2023
December
31, 2024
December
31, 2023
Fixed-to-floating rate
Series F
28,800,000
28,800,000
28,800,000
28,800,000
696,910
696,910
6.95%
9/30/2022
9/30/2022
3M Term SOFR
+ 4.993%
Series G
17,000,000
17,000,000
17,000,000
17,000,000
411,335
411,335
6.50%
3/31/2023
3/31/2023
3M Term SOFR
+ 4.172%
Series I
17,700,000
17,700,000
17,700,000
17,700,000
428,324
428,324
6.75%
6/30/2024
6/30/2024
3M Term SOFR
+ 4.989%
Total
63,500,000
63,500,000
63,500,000
63,500,000
$ 1,536,569
$ 1,536,569
(1) Subject to the Company’s right under limited circumstances to redeem preferred stock earlier in order to preserve its qualification as a REIT or under
limited circumstances related to a change in control of the Company.
(2) For each series of fixed-to-floating rate cumulative redeemable preferred stock, the floating rate is calculated as 3-month CME Term SOFR (plus a spread
adjustment of 0.26161%) plus the spread specified in the prospectus.
Each series of preferred stock has a par value of $0.01 per share and a liquidation and redemption price of $25.00, plus accrued
and unpaid dividends through their redemption date. Through December 31, 2024, the Company had declared and paid all
required quarterly dividends on the Company’s preferred stock.
The Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Fixed-to-Floating Rate Cumulative
Preferred Stock and Series I Fixed-to-Floating Rate Cumulative Preferred Stock rank senior to the common stock of the
Company.
On November 3, 2022, the Company’s Board of Directors approved a repurchase plan for all of its existing outstanding
Preferred Stock (as defined below, the “Prior Preferred Stock Repurchase Program”). Under the terms of the Prior Preferred
Stock Repurchase Program plan, the Company is authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred
Stock, comprised of up to (i) 28,800,000 shares of its 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, par value $0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of its 6.50% Series G Fixed-to-Floating
Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000
shares of its 6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the
“Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The
aggregate liquidation value of the Preferred Stock that may be repurchased by the Company pursuant to the Prior Preferred
Stock Repurchase Program, as of November 3, 2022, was approximately $1.6 billion. The Prior Preferred Stock Repurchase
Program became effective on November 3, 2022, and expired on December 31, 2024. No shares were repurchased with respect
to the Prior Preferred Stock Repurchase Program during the year ended December 31, 2024.
On December 31, 2024, the Board approved a repurchase plan for all of its existing outstanding Preferred Stock (as defined
below, the “Current Preferred Stock Repurchase Program”). Under the terms of the Current Preferred Stock Repurchase
Program, we are authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i)
28,800,000 shares of its Series F Preferred Stock, (ii) 17,000,000 shares of its Series G Preferred Stock, and (iii) 17,700,000
shares of its Series I Preferred Stock. The aggregate liquidation value of the Preferred Stock that may be repurchased by the
Company pursuant to the Current Preferred Stock Repurchase Program, as of December 31, 2024, was approximately
$1.6 billion. The Current Preferred Stock Repurchase Program replaced the Prior Preferred Stock Repurchase Program. The
Current Preferred Stock Repurchase Program became effective on January 1, 2025, and will expire on December 31, 2029.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-30
(C)
Distributions to Stockholders
The following table provides a summary of the Company’s dividend distribution activity for the periods presented:
For the Years Ended
December 31, 2024
December 31, 2023
(dollars in thousands, except per share data)
Dividends and dividend equivalents declared on common stock and share-based awards
$
1,397,733
$
1,294,688
Distributions declared per common share (1)
$
2.60
$
2.60
Distributions paid to common stockholders after period end
$
375,932
$
325,052
Distributions paid per common share after period end
$
0.65
$
0.65
Date of distributions paid to common stockholders after period end
January 31, 2025
January 31, 2024
Dividends declared to series F preferred stockholders
$
74,887
$
73,892
Dividends declared per share of series F preferred stock (2)
$
2.600
$
2.566
Dividends declared to series G preferred stockholders
$
41,619
$
37,916
Dividends declared per share of series G preferred stock (2)
$
2.448
$
2.230
Dividends declared to series I preferred stockholders
$
38,045
$
29,868
Dividends declared per share of series I preferred stock (2)
$
2.149
$
1.688
(1) For the year ended December 31, 2024, 100% of common stock dividend distributions of $2.60 per share declared in calendar year 2024 were
taxable as ordinary income. For the year ended December 31, 2023, 100% of common stock dividend distributions of $2.83 per share paid in
calendar year 2023 and $0.65 per share paid on January 31, 2024 were taxable as ordinary income.
(2) For the years ended December 31, 2024 and 2023, 100% of the preferred stock dividend distributions per share were taxable as ordinary
income.
15. LONG-TERM STOCK INCENTIVE PLAN
Employees, Directors and other service providers of the Company are eligible to participate in the Company’s 2020 Equity
Incentive Plan (the “Plan”), which provides for equity-based compensation in the form of stock options, share appreciation
rights, dividend equivalent rights, restricted shares, restricted stock units (“RSUs”), and other share-based awards. The
Company has the ability to award up to an aggregate of 31,250,000 shares under the terms of the Plan, subject to adjustment for
any awards that were outstanding under the Company’s 2010 Equity Incentive Plan (the “Prior Plan”, collectively the “Plans”)
on the effective date of the Plan and subsequently expire, terminate, or are surrendered or forfeited. No new awards are
permitted to be made under the Prior Plan, although existing awards remain effective.
Restricted Stock Units
The Company grants RSUs (including RSUs subject to performance conditions (“PSUs”)) to employees, which are generally
valued based on the closing price of the underlying shares on the date of grant. For RSUs that vest, the underlying shares of
common stock are delivered (net of required withholding tax) as outlined in the applicable award agreements. PSUs are subject
to the Company’s achievement of specified performance criteria and the number of awards that vest can range from zero to
150% of the grant amount. Award agreements generally provide that vesting is accelerated in certain circumstances, such as
death and disability. Delivery of the underlying shares of common stock, which generally occurs over a three-year period, is
conditioned on the grantees satisfying certain vesting and other requirements outlined in the award agreements.
The Company recognized equity-based compensation expense of $23.2 million for the year ended December 31, 2024. As of
December 31, 2024, there was $27.9 million of total unrecognized compensation cost related to non-vested share-based
compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.83 years.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-31
16. INTEREST INCOME AND INTEREST EXPENSE
Refer to the “Significant Accounting Policies” Note for details surrounding the Company’s accounting policy related to net
interest income on securities and loans.
The following table summarizes the interest income recognition methodology for Residential Securities:
Interest Income Methodology
Agency
Fixed-rate pass-through (1)
Effective yield (3)
Adjustable-rate pass-through (1)
Effective yield (3)
Multifamily (1)
Contractual Cash Flows
CMO (1)
Effective yield (3)
Reverse mortgages (2)
Prospective
Interest-only (2)
Prospective
Residential credit
CRT (2)
Prospective
Alt-A (2)
Prospective
Prime (2)
Prospective
Subprime (2)
Prospective
NPL/RPL (2)
Prospective
Prime jumbo (2)
Prospective
(1) Changes in fair value are recognized in Other comprehensive income (loss) in the accompanying Consolidated Statements
of Comprehensive Income (Loss) for securities purchased prior to July 1, 2022. Effective July 1, 2022, changes in fair
value are recognized in Net gains (losses) on investments and other in the accompanying Consolidated Statements of
Comprehensive Income (Loss) for newly purchased securities.
(2) Changes in fair value are recognized in Net gains (losses) on investments and other in the accompanying Consolidated
Statements of Comprehensive Income (Loss).
(3) Effective yield is recalculated for differences between estimated and actual prepayments and the amortized cost is
adjusted as if the new effective yield had been applied since inception.
The following table presents the components of the Company’s interest income and interest expense for the years ended
December 31, 2024, 2023 and 2022.
For the Years Ended December 31,
2024
2023
2022
Interest income
(dollars in thousands)
Agency securities (1)
$
3,205,862
$
2,740,320
$
2,144,696
Residential credit securities
203,758
225,266
140,220
Residential mortgage loans (1)
1,282,941
703,838
410,229
Commercial investment portfolio (1) (2)
9,857
28,385
81,855
Reverse repurchase agreements
137,616
33,772
1,887
Total interest income
$
4,840,034
$
3,731,581
$
2,778,887
Interest expense
Repurchase agreements
$
3,579,837
$
3,337,527
$
1,026,201
Debt issued by securitization vehicles
856,418
443,584
225,216
Participations issued
67,748
50,357
39,366
U.S. Treasury securities sold, not yet purchased
88,235
11,497
—
Other
—
—
18,952
Total interest expense
4,592,238
3,842,965
1,309,735
Net interest income
$
247,796
$
(111,384) $
1,469,152
(1) Includes assets transferred or pledged to securitization vehicles.
(2) Includes corporate debt.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-32
17. NET INCOME (LOSS) PER COMMON SHARE
The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income
(loss) per share for the years ended December 31, 2024, 2023 and 2022.
For the Years Ended
December 31, 2024
December 31, 2023
December 31, 2022
(dollars in thousands, except per share data)
Net income (loss)
$
1,011,768
$
(1,638,457) $
1,726,420
Net income (loss) attributable to noncontrolling interests
9,862
4,714
1,095
Net income (loss) attributable to Annaly
1,001,906
(1,643,171)
1,725,325
Dividends on preferred stock
154,551
141,676
110,623
Net income (loss) available (related) to common stockholders
$
847,355
$
(1,784,847) $
1,614,702
Weighted average shares of common stock outstanding-basic
521,737,554
494,541,323
411,348,484
Add: Effect of stock awards, if dilutive
1,010,056
—
273,274
Weighted average shares of common stock outstanding-diluted
522,747,610
494,541,323
411,621,758
Net income (loss) per share available (related) to common share
Basic
$
1.62
$
(3.61) $
3.93
Diluted
$
1.62
$
(3.61) $
3.92
The computations of diluted net income (loss) per share available (related) to common share for the years ended December 31,
2023 and 2022 exclude 1.9 million and 0.7 million, respectively, of potentially dilutive restricted stock units and performance
stock units because their effect would have been anti-dilutive. There were no potentially dilutive restricted stock units or
performance stock units for the year ended December 31, 2024.
18. INCOME TAXES
For the year ended December 31, 2024 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860.
As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders.
To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its
stockholders and meet certain other requirements that relate to, among other things, assets it may hold, income it may generate
and its stockholder composition. It is generally the Company’s policy to distribute 100% of its REIT taxable income.
To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within
the next year as permitted by the Code.
The Company and certain of its direct and indirect subsidiaries, including Annaly TRS, Inc. and certain subsidiaries of joint
ventures, have made separate joint elections to treat these subsidiaries as TRSs. As such, each of these TRSs is taxable as a
domestic C corporation and subject to federal, state and local income taxes based upon their taxable income.
The provisions of ASC 740, Income Taxes (“ASC 740”), clarify the accounting for uncertainty in income taxes recognized in
financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or
expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be
recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial
position. Thus, no accruals for penalties and interest were deemed necessary at December 31, 2024 and 2023.
The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status
as a REIT and, therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however,
be subject to certain minimum state and local tax filing fees as well as certain excise, franchise or business taxes. The
Company’s TRSs are subject to federal, state and local taxes. The Company’s federal, state and local tax returns from 2021 and
forward remain open for examination.
During the years ended December 31, 2024, 2023 and 2022 the Company recorded $15.3 million, $39.4 million and $45.6
million, respectively, of income tax expense (benefit) attributable to its TRSs. Income tax expense (benefit) consists of the
following:
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-33
For the Years Ended
December 31, 2024
December 31, 2023
December 31, 2022
(dollars in thousands)
Current Tax Expense (Benefit)
Federal
$
771
$
—
$
133
State and local
240
28
115
Total current income tax expense (benefit)
$
1,011
$
28
$
248
Deferred Tax Expense (Benefit)
Federal
$
12,468
$
34,480
$
39,658
State and local
1,781
4,926
5,665
Total deferred income tax expense (benefit)
$
14,249
$
39,406
$
45,323
Total income tax expense (benefit)
$
15,260
$
39,434
$
45,571
The difference between the Company's reported income tax provision and the U.S. federal statutory rate of 21.0% and state
income tax rates is as follows:
For the Years Ended
December 31, 2024
December 31, 2023
December 31, 2022
Statutory federal income tax rate
21.0%
21.0%
21.0%
Non-taxable REIT income
(22.5%)
(25.2%)
(21.0%)
State and local taxes
3.0%
3.0%
3.0%
VIE and Other
—%
(1.3%)
(0.3%)
Change in valuation allowance
—%
—%
—%
Total provision
1.5%
(2.5%)
2.6%
As of December 31, 2024, the Company recorded a net deferred tax asset of $62.9 million resulting primarily from loss
carryforwards, securitization gains and unrealized losses on swaps, and a net deferred tax liability of $131.9 million resulting
primarily from unrealized gains on MSR, which is included in Other assets and Other liabilities, respectively, in the
Consolidated Statements of Financial Condition. As of December 31, 2024, no valuation allowance was established.
As of December 31, 2024, the Company's TRSs had approximately $50.3 million of net operating loss carryforwards for federal
income tax purposes which may be available to offset future taxable income, including approximately $7.9 million of net
operating loss carryforwards that are subject to an annual limitation under Internal Revenue Code Section 382 and $42.4
million that can be carried forward indefinitely.
19. SEGMENTS
The Company operates in three reportable segments further described in the Description of Business Note. The accounting
policies applied to the segments are the same as those described in the summary of significant accounting policies, with the
exception of allocations between segments related to net interest income and other comprehensive income (loss), which are
reflected in Other income (loss), and allocations between segments related to investment balances, which are presented net of
associated financings in Total Assets. These allocations are made to reflect the economic hedging relationship between
investments within different operating segments. Activities that are not directly attributable or not allocated to any of the three
current operating segments (such as investments in commercial mortgage-backed securities, preferred stock dividends and
corporate existence costs) are reported under Corporate and Other as reconciling items to the Company’s consolidated financial
statements. The tables below summarize the result of operations and total assets by segment that are provided to the Chief
Operating Decision Maker (CODM), which is the Company’s Operating Committee. Comprehensive income is the measure of
segment profit or loss that is determined in accordance with the measurement principles used in measuring the corresponding
amounts in the consolidated financial statements and is a key determinant of the Company’s economic return (computed as the
change in stockholders’ equity attributable to common stockholders plus common stock dividends declared divided by the prior
period’s stockholders’ equity attributable to common stockholders), a measure which is used by the CODM to evaluate segment
results and is one of the factors considered in determining capital allocation among the segments.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-34
The following tables present the results of operations of the Company’s reportable operating segments for the years ended
December 31, 2024, 2023 and 2022:
December 31, 2024
Agency
Residential
Credit
MSR
Corporate &
Other
Consolidated
(dollars in thousands)
Interest income
$
3,340,101 $
1,490,076 $
— $
9,857 $
4,840,034
Interest expense
3,367,984
1,217,780
—
6,474
4,592,238
Net interest income
(27,883)
272,296
—
3,383
247,796
Servicing and related income
—
—
485,406
—
485,406
Servicing and related expense
—
—
49,469
—
49,469
Net servicing income
—
—
435,937
—
435,937
Other income (loss)
381,691
147,449
(19,330)
4,841
514,651
Less: Total general and administrative expenses
63,854
53,408
34,670
19,424
171,356
Income (loss) before income taxes
289,954
366,337
381,937
(11,200)
1,027,028
Income taxes
2,026
(15,705)
29,108
(169)
15,260
Net income (loss)
287,928
382,042
352,829
(11,031)
1,011,768
Less: Net income (loss) attributable to noncontrolling interest
—
9,862
—
—
9,862
Net income (loss) attributable to Annaly
287,928
372,180
352,829
(11,031)
1,001,906
Dividends on preferred stock
—
—
—
154,551
154,551
Net income (loss) available (related) to common stockholders
287,928
372,180
352,829
(165,582)
847,355
Unrealized gains (losses) on available-for-sale securities
(244,278)
—
—
—
(244,278)
Reclassification adjustment for net (gains) losses included in net
income (loss)
561,996
—
—
—
561,996
Other comprehensive income (loss)
317,718
—
—
—
317,718
Comprehensive income (loss)
605,646
382,042
352,829
(11,031)
1,329,486
Comprehensive income (loss) attributable to noncontrolling
interests
—
9,862
—
—
9,862
Comprehensive income (loss) attributable to Annaly
$
605,646 $
372,180 $
352,829 $
(11,031) $
1,319,624
Noncash investing and financing activities:
Receivable for unsettled trades
2,142,357
—
59,090
—
2,201,447
Payable for unsettled trades
280,515
—
27,767
—
308,282
Net change in unrealized gains (losses) on available-for-sale
securities, net of reclassification adjustment
317,718
—
—
—
317,718
Dividends declared, not yet paid
—
—
—
375,932
375,932
Total assets
Total assets
$
71,834,543 $
28,137,561 $
3,406,686 $
177,594 $ 103,556,384
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-35
December 31, 2023
Agency
Residential
Credit
MSR
Corporate &
Other
Consolidated
(dollars in thousands)
Interest income
$
2,772,963 $
930,232 $
— $
28,386 $
3,731,581
Interest expense
3,096,245
728,273
—
18,447
3,842,965
Net interest income
(323,282)
201,959
—
9,939
(111,384)
Servicing and related income
—
—
364,157
—
364,157
Servicing and related expense
—
—
37,652
—
37,652
Net servicing income
—
—
326,505
—
326,505
Other income (loss)
(1,824,323)
171,678
13,975
(12,921)
(1,651,591)
Less: Total general and administrative expenses
58,852
49,021
29,872
24,808
162,553
Income (loss) before income taxes
(2,206,457)
324,616
310,608
(27,790)
(1,599,023)
Income taxes
1,629
17,121
21,070
(386)
39,434
Net income (loss)
(2,208,086)
307,495
289,538
(27,404)
(1,638,457)
Less: Net income (loss) attributable to noncontrolling interest
—
4,714
—
—
4,714
Net income (loss) attributable to Annaly
(2,208,086)
302,781
289,538
(27,404)
(1,643,171)
Dividends on preferred stock
—
—
—
141,676
141,676
Net income (loss) available (related) to common stockholders
(2,208,086)
302,781
289,538
(169,080)
(1,784,847)
Unrealized gains (losses) on available-for-sale securities
580,680
—
—
—
580,680
Reclassification adjustment for net (gains) losses included in net
income (loss)
1,792,816
—
—
—
1,792,816
Other comprehensive income (loss)
2,373,496
—
—
—
2,373,496
Comprehensive income (loss)
165,410
307,495
289,538
(27,404)
735,039
Comprehensive income (loss) attributable to noncontrolling
interests
—
4,714
—
—
4,714
Comprehensive income (loss) attributable to Annaly
$
165,410 $
302,781 $
289,538 $
(27,404) $
730,325
Noncash investing and financing activities:
Receivable for unsettled trades
2,709,398
—
826
—
2,710,224
Payable for unsettled trades
3,232,941
10
16,438
—
3,249,389
Net change in unrealized gains (losses) on available-for-sale
securities, net of reclassification adjustment
2,373,496
—
—
—
2,373,496
Dividends declared, not yet paid
—
—
—
325,052
325,052
Total assets
Total assets
$
71,167,416 $
19,149,003 $
2,578,644 $
332,173 $
93,227,236
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-36
December 31, 2022
Agency
Residential
Credit
MSR
Corporate &
Other
Consolidated
(dollars in thousands)
Interest income
$
2,146,583 $
550,449 $
— $
81,855 $
2,778,887
Interest expense
936,063
344,669
6,202
22,801
1,309,735
Net interest income
1,210,520
205,780
(6,202)
59,054
1,469,152
Servicing and related income
—
—
246,926
—
246,926
Servicing and related expense
—
—
25,145
—
25,145
Net servicing income
—
—
221,781
—
221,781
Other income (loss)
480,383
(147,908)
(47,510)
(41,178)
243,787
Less: Total general and administrative expenses
50,817
47,005
29,784
35,123
162,729
Income (loss) before income taxes
1,640,086
10,867
138,285
(17,247)
1,771,991
Income taxes
(792)
(10,485)
57,055
(207)
45,571
Net income (loss)
1,640,878
21,352
81,230
(17,040)
1,726,420
Less: Net income (loss) attributable to noncontrolling interest
—
1,088
—
7
1,095
Net income (loss) attributable to Annaly
1,640,878
20,264
81,230
(17,047)
1,725,325
Dividends on preferred stock
—
—
—
110,623
110,623
Net income (loss) available (related) to common stockholders
1,640,878
20,264
81,230
(127,670)
1,614,702
Unrealized gains (losses) on available-for-sale securities
(8,204,542)
—
—
—
(8,204,542)
Reclassification adjustment for net (gains) losses included in net
income (loss)
3,537,236
—
—
—
3,537,236
Other comprehensive income (loss)
(4,667,306)
—
—
—
(4,667,306)
Comprehensive income (loss)
(3,026,428)
21,352
81,230
(17,040)
(2,940,886)
Comprehensive income (loss) attributable to noncontrolling
interests
—
1,088
—
7
1,095
Comprehensive income (loss) attributable to Annaly
$
(3,026,428) $
20,264 $
81,230 $
(17,047) $
(2,941,981)
Noncash investing and financing activities:
Receivable for unsettled trades
572,089
—
3,002
—
575,091
Payable for unsettled trades
1,108,386
38
49,422
—
1,157,846
Net change in unrealized gains (losses) on available-for-sale
securities, net of reclassification adjustment
(4,667,306)
—
—
—
(4,667,306)
Dividends declared, not yet paid
—
—
—
412,113
412,113
Total assets
Total assets
$
65,080,130 $
14,152,927 $
1,931,176 $
686,479 $
81,850,712
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-37
20. RISK MANAGEMENT
The primary risks to the Company are liquidity and funding risk, investment/market risk, credit risk and operational risk.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international
economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest
rates can affect net interest income, which is the difference between the interest income earned on interest earning assets and the
interest expense incurred in connection with the interest bearing liabilities, by affecting the spread between the interest earning
assets and interest bearing liabilities. Changes in the level of interest rates can also affect the value of the interest earning assets
and the Company’s ability to realize gains from the sale of these assets. A decline in the value of the interest earning assets
pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties
demanding additional collateral or liquidating some of the existing collateral to reduce borrowing levels.
The Company may seek to mitigate the potential financial impact of these risks by entering into interest rate agreements such as
interest rate swaps, interest rate swaptions and other hedges.
Weakness in the mortgage market, the shape of the yield curve, changes in the expectations for the volatility of future interest
rates and deterioration of financial conditions in general may adversely affect the performance and market value of the
Company’s investments. This could negatively impact the Company’s book value. Furthermore, if many of the Company’s
lenders are unwilling or unable to provide additional financing, the Company could be forced to sell its investments at an
inopportune time when prices are depressed. The Company has established policies and procedures for mitigating risks,
including conducting scenario and sensitivity analyses and utilizing a range of hedging strategies.
The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities, which exclude
CRT securities issued by Freddie Mac and Fannie Mae, is guaranteed by those respective agencies and the payment of principal
and interest on Ginnie Mae Agency mortgage-backed securities is backed by the full faith and credit of the U.S. government.
The Company faces credit risk on the portions of its portfolio which are not guaranteed by the respective Agency or by the full
faith and credit of the U.S. government. The Company is exposed to credit risk on commercial mortgage-backed securities,
residential mortgage loans, CRT securities and other non-Agency mortgage-backed securities. MSR values may also be
adversely impacted by rising borrower delinquencies which would reduce servicing income and increase overall costs to service
the underlying mortgage loans. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform
its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk,
including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase
due diligence, maintaining qualifying collateral, continually assessing the creditworthiness of issuers, borrowers and
counterparties, credit rating monitoring and active servicer oversight.
The Company depends on third party service providers to perform various business processes related to its operations, including
mortgage loan servicers and sub-servicers. The Company’s vendor management policy establishes procedures for engaging,
onboarding and monitoring the performance of third party vendors. For mortgage loan servicers and sub-servicers, these
procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and
regulations, cybersecurity and business continuity programs and security of personal information.
21. LEASE COMMITMENTS AND CONTINGENCIES
The Company’s operating leases are primarily comprised of corporate office leases with remaining lease terms of
approximately three years and seventeen years. The corporate office leases include options to extend for up to five years,
however the extension terms were not included in the operating lease liability calculation. Leases with an initial term of 12
months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line
basis over the lease term. The lease cost for the year ended December 31, 2024 was $3.3 million.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-38
Supplemental information related to leases as of and for the year ended December 31, 2024 was as follows:
Operating Leases
Classification
December 31, 2024
Assets
(dollars in thousands)
Operating lease right-of-use assets
Other assets
$
27,906
Liabilities
Operating lease liabilities (1)
Other liabilities
$
28,638
Lease term and discount rate
Weighted average remaining lease term
17.1 years
Weighted average discount rate (1)
7.0%
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
4,107
(1) For the Company’s leases that do not provide an implicit rate, the Company uses an incremental borrowing rate based on the
information available at adoption date in determining the present value of lease payments.
The following table provides details related to maturities of lease liabilities:
Maturity of Lease Liabilities
Years ended December 31,
(dollars in thousands)
2025
$
3,149
2026
261
2027
2,503
2028
3,854
Later years
55,872
Total lease payments
$
65,639
Less: imputed interest
37,001
Present value of lease liabilities
$
28,638
Contingencies
From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated
financial statements. There were no material contingencies at December 31, 2024 and 2023.
22. SUBSEQUENT EVENTS
In January 2025, the Company completed and closed one securitization of residential mortgage loans, OBX 2025-NQM1, with
a face value of $618.4 million. In February 2025, the Company completed and closed one securitization of residential mortgage
loans, OBX 2025-NQM2, with a face value of $719.2 million. These securitizations represent financing transactions which
provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company.
In January 2025, the Company upsized capacity of an existing credit facility by $250 million for the Company’s MSR platform
and closed a $300 million credit facility for the Company’s residential mortgage loans.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
F-39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 13, 2025
By: /s/ David L. Finkelstein
David L. Finkelstein
Chief Executive Officer and Co-Chief Investment Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ David L. Finkelstein
David L. Finkelstein
Chief Executive Officer, Co-Chief Investment Officer, and Director
(Principal Executive Officer)
February 13, 2025
/s/ Serena Wolfe
Serena Wolfe
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
February 13, 2025
/s/ Francine J. Bovich
Francine J. Bovich
Director
February 13, 2025
/s/ Thomas Edward Hamilton
Thomas Edward Hamilton
Director
February 13, 2025
/s/ Kathy Hopinkah Hannan
Kathy Hopinkah Hannan
Director
February 13, 2025
/s/ Michael E. Haylon
Michael E. Haylon
Director, Chair of the Board
February 13, 2025
/s/ Martin Laguerre
Martin Laguerre
Director
February 13, 2025
/s/ Manon Laroche
Manon Laroche
Director
February 13, 2025
/s/ Eric A. Reeves
Eric A. Reeves
Director
February 13, 2025
/s/ John H. Schaefer
John H. Schaefer
Director
February 13, 2025
/s/ Glenn A. Votek
Glenn A. Votek
Director
February 13, 2025
/s/ Scott Wede
Scott Wede
Director
February 13, 2025
/s/ Vicki Williams
Vicki Williams
Director
February 13, 2025
II-1
(This page has been left blank intentionally.)
(This page has been left blank intentionally.)
Continuing Directors: Represents the nine members of the Board following the 2025 Annual Meeting
(assuming all nominees are elected)
CPR: Refers to Constant Prepayment Rate
CR Committee: Refers to the Corporate Responsibility Committee
CRT: Refers to Credit Risk Transfer Securities
Dedicated Capital: Represents the capital allocation for each of the investment strategies calculated
as the difference between each investment strategy’s allocated assets, which include TBA purchase
contracts, and liabilities
Economic Return: Refers to the Company’s change in book value plus dividends declared divided by
the prior period’s book value
Ginnie Mae: Refers to the Government National Mortgage Association
GSE: Refers to Government Sponsored Enterprise
LTV: Refers to Loan to Value
MDC Committee: Refers to the Management Development and Compensation Committee
mREIT: Refers to mortgage Real Estate Investment Trust
MSR: Refers to Mortgage Servicing Rights
NCG Committee: Refers to the Nominating / Corporate Governance Committee
Non-Performing Loan (“NPL”): Refers to a loan that is close to defaulting or is in default
Non-QM: Refers to a Non-Qualified Mortgage
OBX: Refers to Onslow Bay Securities
Re-Performing Loan (“RPL”): Refers to a type of loan in which payments were previously delinquent
by at least 90 days but have resumed
TBA: Refers to To-Be-Announced Securities
Unencumbered Assets: Represents Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash equivalents, Agency MBS, CRT, Non-
Agency MBS, residential mortgage loans, MSR, reverse repurchase agreements, other unencumbered
financial assets and capital stock)
UPB: Refers to Unpaid Principal Balance
WAC: Refers to Weighted Average Coupon
Glossary of Terms
20
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
Annaly | Leader Across Residential Mortgage Finance
Source: Company filings and Bloomberg. Market and financial data as of
December 31, 2024.
1.
Permanent capital represents Annaly’s total stockholders’ equity as
of December 31, 2024.
2.
Total portfolio represents Annaly’s investments that are on-balance
sheet as well as investments that are off-balance sheet in which
Annaly has economic exposure. Assets reflect TBA purchase
contracts (market value) of $3.2bn, exclude assets transferred
or pledged to securitization vehicles of $22.0bn and include
unsettled MSR commitments of $385mm and $2.3bn of retained
securities that are eliminated in consolidation and are shown net of
participations issued totaling $1.2bn. MSR commitments represent
the market value of deals where Annaly has executed a letter of
intent. There can be no assurance whether these deals will close or
when they will close.
3.
Represents total shareholder return for the period beginning October
7, 1997 through December 31, 2024.
4.
Data shown since Annaly’s initial public offering in October 1997
through December 31, 2024 and includes common and preferred
dividends declared.
5.
Dividend yield is based on annualized Q4 2024 dividend of $0.65 and
a book value of $19.15 as of December 31, 2024.
6.
Represents the estimated number of homes financed by Annaly’s
holdings of Agency MBS, residential whole loans and securities,
as well as multi-family commercial real estate loans, securities
and equity investments. The number includes all homes related to
securities and loans wholly-owned by Annaly and a pro-rata share of
homes in securities or equity investments that are partially owned
by Annaly.
7.
Comprised of $5.8bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.1bn of fair
value of collateral pledged for future advances.
Power of Annaly
Source: Company filings and Bloomberg. Market data as of December 31,
2024. Financial data as of December 31, 2024.
1.
Represents our Mortgage REIT peer group including the following
Agency and Hybrid mREIT peers: AGNC, ARR, CIM, DX, EFC, IVR,
MFA, NYMT, ORC, RITM, RWT, TWO.
2.
Permanent capital represents Annaly’s total stockholders’ equity as
of December 31, 2024.
3.
Excludes transaction expenses and nonrecurring items.
4.
Comprised of $5.8bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.1bn of fair
value of collateral pledged for future advances.
Proven Results
Source: Company filings and Bloomberg. Market data as of December 31,
2024. Financial data as of December 31, 2024.
1.
Data shown since Annaly’s initial public offering in October 1997
through December 31, 2024 and includes common and preferred
dividends declared.
Proven Results (cont’d)
2.
Represents total shareholder return for the period beginning
October 7, 1997 through December 31, 2024 for Annaly and the S&P
500 Financials Index. S&P 500 REITs Index total shareholder return
for the period beginning October 9, 2001 (earliest available data)
through December 31, 2024.
People First
Note: Employee composition statistics as of December 31, 2024.
1.
Financial services 2024 turnover rate estimated to be approximately
15% based on data from the U.S. Bureau of Labor Statistics as of
December 31, 2024.
Message from Our CEO
Source: Company filings. Financial data as of December 31, 2024.
1.
Delinquencies represent D60+. Based on data from the BofA
Securities Non-QM Shelf and Deal Report, as of December 25, 2024
securities remittance report.
2.
Issuer ranking data from Inside Nonconforming Markets for 2023 –
2024 (January 10, 2025 issue). Used with permission.
3.
Includes unsettled MSR commitments of $385mm.
4.
Based on data from Inside Mortgage Finance for the period ended
December 31, 2024. Used with permission.
5.
Includes a $618mm whole loan securitization that priced in January
2025, a $719mm whole loan securitization that priced in February
2025, a $577mm whole loan securitization that priced in February
2025, a $626mm whole loan securitization that priced in March 2025
and a $216mm whole loan securitization that priced in March 2025.
6.
Includes a $250mm upsize to an existing credit facility for Annaly’s
MSR business that closed in January 2025.
7.
Includes a $250mm upsize to an existing credit facility for Annaly’s
MSR business that closed in January 2025.
8.
Represents a non-GAAP financial measure. Refer to the “Non-GAAP
Financial Measures” section of the 10-K for additional information.
9.
Comprised of $5.8bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.1bn of fair
value of collateral pledged for future advances.
10. Amount raised through the Company’s at-the-market sales program
for its common stock, net of sales agent commissions and excluded
other offering expenses.
11. Represents total shareholder return for the period beginning
October 7, 1997 through December 31, 2024.
12. Agency mREIT peers include AGNC, ARR, DX, IVR, ORC. Hybrid
mREIT peers include CIM, EFC, MFA, NYMT, RITM, RWT, TWO.
13. Based on annualized Q1 2025 dividend of $0.70 per share and a
book value of $19.15 as of December 31, 2024.
Annaly Investment Strategies
Source: Company filings. Financial data as of December 31, 2024.
1.
Investment strategy pie charts are calculated off of total assets.
2.
Permanent capital represents Annaly’s total stockholders’ equity as
of December 31, 2024.
3.
Includes TBA purchase contracts and fixed-rate pass-through
certificates.
Endnotes
A N N A L Y C A P I T A L M A N A G E M E N T , I N C .
21
Annaly Investment Strategies (cont’d)
4.
Represents the capital allocation for each of the investment
strategies and is calculated as the difference between each
investment strategy’s allocated assets, which include TBA purchase
contracts, and liabilities.
5.
Shown exclusive of securitized residential mortgage loans of
consolidated variable interest entities. Prime includes $27.6mm of
Prime IO, OBX Retained contains $343.2mm of Prime IO and Prime
Jumbo IO and Prime Jumbo includes $90.1mm of Prime Jumbo IO.
6.
Excludes unsettled commitments of $385mm.
Our Investment Strategies | Agency
Source: Company filings. Financial data as of December 31, 2024.
1.
Agency assets reflect TBA purchase contracts (market value) of
$3.2bn.
2.
Represents Agency’s hedging profile and does not reflect Annaly’s
full hedging profile across all three businesses.
Our Investment Strategies | Residential Credit
Source: Company filings. Financial data as of December 31, 2024.
1.
Residential Credit assets exclude assets transferred or pledged
to securitization vehicles of $20.2bn, include $2.3bn of retained
securities that are eliminated in consolidation and are shown net of
participations issued totaling $1.2bn.
2.
Includes a $618mm whole loan securitization that priced in January
2025, a $719mm whole loan securitization that priced in February
2025, a $577mm whole loan securitization that priced in February
2025, $626mm whole loan securitization that priced in March 2025
and a $216mm whole loan securitization that priced in March 2025.
Our Investment Strategies | Mortgage Servicing Rights
Source: Company filings. Financial data as of December 31, 2024.
1.
MSR assets include unsettled MSR commitments of $385mm. MSR
commitments represent the market value of deals where Annaly has
executed a letter of intent. There can be no assurance whether these
deals will close or when they will close.
2.
Portfolio excludes retained servicing on whole loans within the
Residential Credit portfolio.
3.
Excludes unsettled commitments of $385mm.
Financing, Capital & Liquidity
Source: Company filings. Financial data as of December 31, 2024.
1.
Repo balances exclude Residential Credit facilities and US Treasuries
reversed in to support the UST short trade.
2.
Includes a $250mm upsize to an existing credit facility for Annaly’s
MSR business that closed in January 2025.
3.
Amount raised through the Company’s at-the-market sales program
for its common stock, net of sales agent commissions and excluded
other offering expenses.
4.
Includes Residential Credit securitizations.
5.
Comprised of $5.8bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.1bn of fair
value of collateral pledged for future advances.
Onslow Bay Strategic Milestones
Source: Company filings. Financial data as of December 31, 2024.
1.
Includes a $618mm whole loan securitization that priced in January
2025, a $719mm whole loan securitization that priced in February
2025, a $577mm whole loan securitization that priced in February
2025, $626mm whole loan securitization that priced in March 2025
and a $216mm whole loan securitization that priced in March 2025.
2.
Purchases and outstanding pipeline as of December 31, 2024,
including loans from a joint venture with a sovereign wealth fund.
3.
Issuer ranking data from Inside Nonconforming Markets for 2023 –
2024 (January 10, 2025 issue). Used with permission.
4.
Based on data from the BofA Securities Non-QM Shelf and Deal
Report, as of December 25, 2024 securities remittance report.
5.
Includes unsettled commitments of $385mm. MSR commitments
represent the market value of deals where Annaly has executed a
letter of intent. There can be no assurance whether these deals will
close or when they will close.
6.
Based on information aggregated from 2024 Fannie Mae and
Freddie Mac monthly loan level files by eMBS servicing transfer
data as of December 31, 2024. Excludes transfer activity related to
platform acquisitions.
Board Composition & Shareholder Engagement Efforts
Board composition as of April 2025.
1.
Representative of outreach during 2024-2025 proxy season and
shareholder base as of December 31, 2024. Shareholder data per
Ipreo as of December 31, 2024.
Board of Directors
Board composition as of April 2025.
1.
Michael Haylon, Francine J. Bovich and John H. Schaefer have not
been renominated as Directors and will each conclude their service
on the Board following the Annual Meeting in line with the Board’s
refreshment policy.
Endnotes (cont’d)
2 0 2 4 A N N U A L R E P O R T
22
R
This Annual Report is issued by Annaly Capital Management, Inc. (“Annaly”), an internally-managed, publicly traded
company that has elected to be taxed as a real estate investment trust for federal income tax purposes. This Annual
Report is provided for investors in Annaly for informational purposes only and is not an offer to sell, or a solicitation of
an offer to buy, any security or instrument.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report contains or incorporates by reference certain forward-looking statements which are based on
various assumptions (some of which are beyond our control) and may be identified by reference to a future period or
periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,”
“illustrative” or similar terms or variations on those terms or the negative of those terms. Such statements include
those relating to the Company’s future performance, macro outlook, the interest rate and credit environments,
tax reform and future opportunities. Actual results could differ materially from those set forth in forward-looking
statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield
curve; changes in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for
purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of
the Company’s assets; changes in business conditions and the general economy; the Company’s ability to grow its
residential credit business; the Company’s ability to grow its mortgage servicing rights business; credit risks related
to the Company’s investments in credit risk transfer securities and residential mortgage-backed securities and related
residential mortgage credit assets; risks related to investments in mortgage servicing rights; the Company’s ability
to consummate any contemplated investment opportunities; changes in government regulations or policy affecting
the Company’s business; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax
purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of
1940; and operational risks or risk management failures by us or critical third parties, including cybersecurity incidents.
For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the
forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent
Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as
required by law.
We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-
management) as channels of distribution of company information. The information we post through these channels
may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press
releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts
and other information about Annaly when you enroll your email address by visiting the “News & Insights” section of
our website, then clicking on “Subscribe” and completing the email notification form. Our website, any alerts and social
media channels are not incorporated into this document.
Past performance is no guarantee of future results. There is no guarantee that any investment strategy referenced
herein will work under all market conditions. There is no guarantee that illustrative returns will occur. Prior to making
any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of
downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any
potential investment or investment strategy referenced herein. To the extent that this material contains reference to
any past specific investment recommendations or strategies which were or would have been profitable to any person,
it should not be assumed that recommendations made in the future will be profitable or will equal the performance of
such past investment recommendations or strategies. The information contained herein is not intended to provide, and
should not be relied upon for accounting, legal or tax advice or investment recommendations for Annaly or any of its
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Regardless of source, information is believed to be reliable for purposes used herein, but Annaly makes no
representation or warranty as to the accuracy or completeness thereof and does not take any responsibility for
information obtained from sources outside of Annaly. Certain information contained in the presentation discusses
general market activity, industry or sector trends, or other broad-based economic, market or political conditions and
should not be construed as research or investment advice.
Safe Harbor Notice
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Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, NY 10036
www.annaly.com